Operator:

Thank you for standing by, and welcome to The Cooper Companies Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin.

Al White:

Thank you, Kim, and welcome, everyone, to today's call. I'm pleased to report record quarterly revenues and great operational progress throughout our organization. CooperVision returned to double-digit revenue growth, driven by our portfolio of leading silicone hydrogel lenses, and CooperSurgical posted a solid quarter despite some unexpected challenges with the system upgrade impacting our US distribution center. Margins improved as we leveraged prior investment activity, and we delivered excellent earnings growth. As we move forward, we're increasing our revenue and earnings guidance by incorporating this past quarter and the momentum we're seeing in our markets. Moving to the details, and reporting all percentages on an organic basis, consolidated quarterly revenues were a record $943 million, up 8% year-over-year. CooperVision posted record quarterly revenues of $636 million, up 11%, led by strength in our daily silicone hydrogel portfolio. And CooperSurgical posted revenues of $307 million, up 4%. Margins improved, and non-GAAP earnings per share were $0.85. For CooperVision, the Americas grew 10%, EMEA 14%, and Asia Pac 7%. All three regions were led by our innovative product portfolios, market-leading flexibility and strength in key accounts. Within categories, torics and multifocals combined to grow 12% and spheres were up 9%. Within modalities, our daily silicone hydrogel lenses, MyDay and clariti grew 18% and our silicone hydrogel FRP lenses, Biofinity and Avaira, combined to grow 10%. And our myopia management portfolio was up 17%, with MiSight growing 39%. All-in, a very nice quarter with strength around the world and throughout our focused product portfolio. Turning to product details, and starting with our high-growth daily silicone hydrogel portfolio, we had another fantastic quarter with MyDay leading the way delivering outstanding results. MyDay is growing in every market and every category, with particular success in our innovative toric and multifocal products. Our ongoing toric parameter expansion launch across North America and Europe is enabling eyecare professionals, or ECPs, to fit more wearers in our market-leading design and industry-leading SKU range, which is by far the widest toric range in the daily market. And MyDay multifocal's unique combination of an advanced multifocal design paired with an easy fitting system has resulted in very high satisfaction levels, including a 98% fit success rate in two pairs or less. We continue to receive very positive feedback on this fantastic lens, and I continue to count myself as an aesthetic wearer of what is without a doubt the best multifocal contact lens in the market. We've also seen success with our MyDay spheres, especially with our Energys product, which is showing very strong growth. Energys is driven by its innovative DigitalBoost technology designed specifically for today's digital lifestyle and this meaningful technological improvement is important to contact lens wearers and to ECPs. Given the strong performance of this lens in the US, we're excited to launch it in additional markets in the near future. Moving to clariti, our other complete family of silicone hydrogel daily lenses, also remains a growth driver. ECPs love this product for its comfort, easy handling and affordability, which makes it an especially good choice for new wearers. It continues to be an important driver in expanding our daily wearer base with noted success in upgrading legacy hydrogel wearers. Outside of dailies, demand for Biofinity and Avaira remains very healthy. The Biofinity portfolio has continued expanding beyond the traditional ranges of spheres, torics and multifocals into expanded ranges, made-to-order lenses, toric multifocals and Energys and now provides ECPs the ability to fit an amazing 99.9% of patient prescriptions. This is an incredible manufacturing accomplishment and a fantastic benefit to those patients who require the most complex types of vision correction. This is a true differentiator in any office and one of the reasons Biofinity remains so successful. With new state-of-the-art manufacturing lines now in service, we'll be expanding availability of these lenses in existing markets and launching in new markets in the near future. Moving to myopia management, MiSight continues to gain traction, powered by healthy demand. Asia Pac posted a record quarter, EMEA was strong, and the Americas reported a record month in April, although revenues were negatively impacted by a reduction in channel inventory during the quarter. Our back-to-school promotional campaigns are starting soon and we expect robust results based on the success we saw last year. So, we're expecting strong results in the back half of this year. In the meantime, we're marking a milestone anniversary for MiSight with 2024 being the 10-year anniversary of the pivotal MiSight 1 day clinical trial which led to MiSight becoming the first and still the only FDA approved optical intervention for myopia control. This study remains a gold standard in clinical trial study design and duration for myopia control in the longest running study of contact lens wear in children. CooperVision's commitment to establishing myopia control as standard of care continues and can be seen via two important initiatives launched this quarter. First, as part of the continuation of our exclusive partnership with the World Council of Optometry, we've launched the digital Myopia Management Navigator tool available to ECPs around the world. This interactive toolkit provides practical tips and resources to help offices integrate myopia management into their practices. Second, CooperVision and the American Optometric Association have partnered on a groundbreaking initiative, the Myopia Collective, to rally US ECPs to adopt myopia management as a standard of care for their pediatric patients. The program is currently recruiting 51 ECPs representing each state plus the District of Columbia who will work proactively with the AOA and CooperVision to advocate for community and policy change. To conclude on contact lenses, the market grew roughly 5% in calendar Q1 with Cooper taking share up 7%. We continue to expect a robust market moving forward driven by several positive long-term macro growth trends. And within this, we expect to remain a leader with our innovation, robust product portfolio, ongoing product launches, strength in premium products, fast-growing myopia management business and leading New Fit data. Moving to CooperSurgical. We posted quarterly revenues of $307 million, up 4%. Demand was strong, but a systems upgrade caused shipping interruptions in our US distribution center for our medical device and fertility products. We were largely able to overcome this with strength in PARAGARD but not entirely. Having said that, we've made a lot of progress and we're comfortable we'll manage the backlog and reach our full year organic revenue guidance range, which remains unchanged. Implementing IT infrastructure upgrades can certainly be challenging, but this type of work is critical to our long-term success as it supports efficient growth, creates a better customer experience and makes internal operations more effective with improved real-time data. Moving to fertility, sales were $124 million, up 4%. We continue seeing strong demand around the world with our leading products and services continuing to position us well with fertility clinics as they open new facilities, upgrade existing locations and look for opportunities to improve outcomes and optimize our operations. We're also investing for the future, opening new donor sites, providing extensive training in our centers of excellence, expanding geographically and accelerating innovation. Our focus on investing and delivering the most innovative and advanced solutions to fertility clinics and patients remains unmatched. This includes the first and only European approval for a uniquely formulated 1-Step media. This specialized culture and transfer media reinforces embryo-endometrial communication from improved embryo development, sustained implementation and pregnancy. Similar to the advances we're making in fertility-based genetic testing, the science is complex, but the goal is straightforward, providing innovative, market-leading technologies to improve the journey to parenthood. Developing and delivering these types of innovations is why we're a leader in this space and it's our commitment to continue this type of work. Regarding the broader fertility industry, this dynamic market is supported by several positive macro growth trends, including women delaying childbirth, increasing patient awareness, greater benefits coverage, technology advancements and improving access to treatment. The World Health Organization highlights that one in six people will be affected by infertility at some point in their lives, so this is an issue that impacts a lot of people and will do so in the future. As a leader in this space, we remain incredibly committed to advancing the industry by delivering innovative products, standing in support of patients and clinics, and improving access to treatment on a global basis. Moving to office and surgical, we posted sales of $183 million, up 4%, with medical devices declining 6% due to the previously mentioned shipping challenges. Stem cell storage was up 5% and PARAGARD up 22%. Within medical devices, demand was healthy, driven by our minimally invasive gynecological surgical products led by our ALLY Uterine Manipulator portfolio. And our labor and delivery portfolio is now arguably the most comprehensive obstetrics portfolio of medical devices ensuring the safety of mothers and babies and demand remains strong. Our stem cell business had a solid quarter and PARAGARD outperformed expectations with the benefit of stocking related to a mid-single digit price increase. This stocking will naturally offset itself largely in fiscal Q3. To conclude on CooperSurgical, with our expanding obstetrics portfolio of products and services, we can now update our impact to the global community and say that roughly every 30 seconds somewhere around the world, a baby is born using CooperSurgical products. We're making a difference in people's lives and that makes this business very special. To wrap up, let me add that we just released our latest ESG report, which highlights our efforts around environmental sustainability, corporate social responsibility and strong corporate governance. It's on our website and well worth reading when you have a chance. We are passionate about sustainability and I'm thankful to our employees around the world for their commitment to doing things the right way. So with that, let me say thank you to our 15,000-plus employees for their continuing hard work and dedication as they drive our success. And I'll now turn the call over to Brian.

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Craig Bijou from Bank of America. Your line is open.

Al White:

Yeah, Craig, thanks. You're right, we do have harder comps. Q3 is a little bit harder even than Q4 in the back half of the year. On the flip side, we have good momentum right now as we enter the back half of the year and we have improving capacity. And as you know one of the things that's held back a little bit is expensive capacity constraints in certain products. So, as some of those challenges start to reduce, right, we're able to put more product out. And I mentioned this before, but we're in a situation where we have demand exceeding supply and we probably will for a while here. So, we know that as we bring these new lines on and produce more product that we're going to sell that product. So, I think it positions us well. So, even in the face of tougher comps, I'm still feeling pretty optimistic about our ability to deliver some strong growth in the back half of the year.

Al White:

Sure. I'm not going to quantify that. I don't like to go into that and say what would have happened if this wouldn't have happened and so forth and speculate around what those numbers are. But they clearly negatively impacted the quarter, right, because medical device, that's a great team, and they put up strong demand again and would have had a decent quarter without the shipping delays. And same with infertility. We grew fertility what 12, 13 quarters in a row at double digits and dipped down to 4% with some of those shipping issues. Having said that, we are proceeding better right now. I mean, we're having a pretty good May. We're working through the backlog and so forth to get ourselves in a better position. So, I'm optimistic as we work through this quarter that we can address most if not all of that and close the year out strong.

Al White:

Yeah.

Larry Biegelsen:

Hey, Al. Thanks for taking the question. Hey, Al, maybe just talk about the IVF market and your growth. Do you think you can get back to double-digit growth in that business, which we saw for quite a few quarters before this quarter?

Larry Biegelsen:

Okay. Good to hear. And then, on contact lenses, Al, what are you assuming for price for the market and for your contact lens business this year? Thanks for taking the question.

Larry Biegelsen:

All right. Thanks for taking the questions.

Issie Kirby:

Hey, guys. Thanks for taking my question. I, first, just wanted to touch upon the MiSight progress in US and Europe [indiscernible] there this quarter. But wanted to ask about the growth there and whether you're seeing, I guess, a higher number of prescribers or prescribers, essentially, running more revenue per prescriber, basically? And then, your thoughts on potential competition in the soft contact lens market for myopia? And then, I have a follow-up.

Issie Kirby:

Okay. That's great. Thank you. And then I just wanted to touch upon some of the areas of organic investment that you focused on, called out heightened R&D investments. Perhaps across both divisions, if you could call out some particular areas you're looking at, anything that's exciting you in the pipeline at the moment?

Issie Kirby:

Great. Thanks so much.

Jeff Johnson:

Thank you. Good evening, guys. Al, maybe a couple of follow-up questions here. So one, you talked about kind of in your prepared remarks 5% market growth, 7% Cooper growth in the -- I think that would have been calendar 1Q. It's always dangerous to do this, but you put up 11% organic. Does that mean your exit rate in your April month, the month of April, was much stronger than it was the first couple of months of the quarter, number one? And number two, I'm assuming that's GfK data, what's going on maybe sell-in instead of sell-out retail data? Any changes there in inventory? You did talk a little bit about MiSight inventory, but any channel inventory changes or concerns you have US or Rest of World on the channel inventory side? Thanks.

Jeff Johnson:

Okay. Just a follow-up on that. I mean, I'm assuming since you raised CVI guidance, you're not feeling like that's a big risk? And then just on the APAC number being up 7%, we thought MyDay multi going back into Japan, APAC might have been a source of upside this quarter, that obviously didn't happen. Have you just been a little delayed on getting multi – MyDay multi back into Japan, or was there something else underlying in Asia Pac this quarter? Thanks.

Jeff Johnson:

Thank you.

Jon Block:

Great. Thanks, guys. Good afternoon. Maybe just the first one a little bit of a clarification. So, Al, for those distribution center challenges that you called out, you also mentioned the backlog and the thought that you can get that out in subsequent quarters. So, for those challenges, are all those sales calls pushed and not lost? Is it a little bit of a combination of the two? Maybe some clarity there would be helpful. And then, I'll just pivot for the follow-up.

Jon Block:

Got it. Helpful. Thanks. And then to pivot to CVI for the second question, you mentioned the good April, arguably good May as well, and we've seen some solid numbers from the market too. So, you did mention the 10% sihy FRP growth, which is a big number, and it seems like it was a little bit of an easier comp, but rarely are you double-digit syhi FRP. If you could just comment on anything to call out with the consumer, modality changes, is there anything there to look into? Thanks.

Jon Block:

Got it. All right. Thanks, Al.

Robbie Marcus:

Great. Thanks for taking the question, and congrats on a good quarter. Two for me. Maybe the first one, you showed really nice operating margin and gross margin beats in the quarter despite the warehouse ramp issue. Maybe just speak to some of the specifics of what you're doing? I know it's been a focus for management, but any details on what drove it would be helpful.

Robbie Marcus:

Maybe a follow-up for me. I think $0.02 worse currency came in a whole lot better than the fears were -- that I was hearing at least. And I know probably a good part of that was due to, I know you started I think it was fiscal third quarter last year, a hedging program on intercompany loans, which helps limit disruption on the other income line. So just wondering when you look at currency, how much help have you gotten from starting that hedging program? And I'll just leave it there. Thanks a lot.

Robbie Marcus:

Great. Thanks a lot.

Jason Bednar:

Hi, there. I'll echo the congrats here on a nice quarter. Al or Brian, I wanted to start on EMEA. The performance there at CVI just continues to be extraordinarily strong. You've been putting up really good growth, covering up what's maybe being held back a little bit in APAC. How sustainable is the run you've got in EMEA? It's because it's been pretty impressive, just like -- we would love to gauge your confidence level in staying up at these low- to mid-teens growth levels. And if you could help us out with what's supporting that with respect to the capacity expansion that's helping, or are these just like just simple wins that you're having with key accounts or other share gains?

Jason Bednar:

Okay. All right. That's helpful. And then, I want to maybe follow-up by with a clarification or a follow-up from Jon Block's question. Just wanted to talk about the pushes and pulls in CSI revenue assumptions for the back half of the year. I know you mentioned clearing some of the backlog. It sounds like you think you're going to get a lot of that back that you lost. Don't want to quantify it just yet, but I think you also said that PARAGARD helped make up some of the losses here in the current quarter. So, I guess just curious how you're thinking about the components of that unchanged or relatively unchanged CSI revenue guide and whether there's any margin implications from those assumptions if like maybe PARAGARD is helping a little bit more in your updated guide?

Jason Bednar:

Okay, great. Thank you.

Anthony Petrone:

Hi, thanks for taking the questions. Congrats on a solid underlying quarter here. Maybe on capacity for contact lenses, just to sort of revisit that, Al or Brian, how far ahead do you think your capacity overall is relative to some of the competitors out there? That will be one question. And then, the follow-up to that would be, just when we look out in terms of this latest CapEx growth cycle here on manufacturing capacity expansion for contact lenses, how long is this investment horizon going to be and when does it actually come to a conclusion? Thanks a lot and congrats on the quarter.

Anthony Petrone:

That's helpful. Thanks.

Joanne Wuensch:

Hi. Thank you for taking the question and very nice quarter. I want to spend a little bit of time on operating margins because you're starting to push those up nicely. And I don't know whether it's a new view towards their meaning or new levers that you have to pull or the new FX program that you put into place, but I'd love to get a couple of the factors that are driving that. Thanks.

Brian Andrews:

Yeah. I don't have much to add there, Joanne. I think, Al, put it well. I mean, what's nice is that we've got some really, really important initiatives behind us towards the end of last year. So, now we're working on sort of iterating and continuously improving on that activity that we put into service. So, getting that leverage this year has been a little bit easier than obviously it was last year, and we continue to make progress across many fronts.

Operator:

Your next question comes from the line of Patrick Wood from Morgan Stanley. Your line is open.

Al White:

Yeah. I don't know if I'd add too much on top of what I said earlier. Really strong team, great products, well positioned with a lot of the key accounts that we have there. And I think we've got potential for solid growth moving forward. I mean we are running into multiple quarters, years of really strong performance out of that region. So it gets a little bit more difficult to continue to put up that sizable levels of growth. But I'd anticipate we're going to continue to perform well there for all those reasons.

Al White:

Well, I would say -- I would answer that by saying number one is organic investments. We touched on that earlier investing on bringing more capital online, investing on creating or expanding products that we have in the marketplace right now. So, I would say there's a lot of focus on that right now, internal investments if you will, which are higher return, lower risk type investment activity. And then paying down some debt. I still don't think there's anything wrong frankly with paying down debt right now. We'll see what happens with interest rates, but we carry a decent amount of debt. Regarding your last point, I mean, if acquisitions come along or we see some smaller tuck-in type deals, like we would evaluate those, and if they make sense, we'd consider doing them.

Operator:

Your next question comes from the line of Chris Pasquale from Nephron. Your line is open.

Al White:

Yeah. I think full year growth is probably in that flattish to up a little bit. It'd probably be up a little bit depending upon competitor launch or something along those lines. I think we did around $46 million in this quarter. I would sequentially expect that to be lower, Q3 lower than Q2.

Brian Andrews:

Hi, Chris. Yeah, thanks for the question. Really, the story behind our effective tax rate going down in the first and in the second quarter is stock option exercises. As you know, we don't -- it's hard to forecast -- you can't forecast when or how much people are going to exercise, but stock option exercises drove the effective tax rate down probably by 1% in the second quarter. So you're right, I think you can model out the rest of the year and getting 14% around there at least incorporates the lower tax rate in Q2 and roughly 15% for the balance of Q3 and Q4. As it relates to our organic tax rate, our underlying organic tax rate, it is hovering somewhere around that 15% to 15.5% or so range. So, I'd expect that's kind of, if we were to start next year, it would be somewhere probably in that ballpark.

Operator:

Your next question comes from the line of Brett Fishbin from KeyBanc Capital Markets. Your line is open.

Al White:

Sure. Yeah, you get lumpiness in PARAGARD. We've always had it. I mean if you go back and look over the years, you've always seen a lot of lumpiness around PARAGARD tied to channel inventory and tied to price. I mean in this case, we did a mid-single digit price increase and customers had a chance to buy in on that at the end of our first fiscal quarter, because it actually helps on that, and then during this second fiscal quarter. So, we saw some buy in activity. And you'll just naturally see that kind of play itself out in Q3 and go in the other direction. Underlying kind of themes if you will in that marketplace from our perspective is the market is still a struggle from a unit perspective. So yeah, you're getting growth from price. It's not coming from units. I mean there's competitive products out there. There's no other non-hormonal IUD in the market today and maybe a competitive product will come. But there's easier access to birth control pills and other birth control related items that are out there that continues to make that challenging market.

Al White:

Yeah, they were pretty similar. They're pretty similar.

David Saxon:

Great. Hi, Al and Brian, thanks for taking my questions and congrats on the quarter. Wanted to start in CVI ortho-k. It looks like it was down kind of low-single digits. So, how much of that weakness is driven by China still? And how are you thinking about the recovery in that market?

David Saxon:

Okay, got it. And then just a follow-up on margins. So, I mean looking kind of pre-COVID, if you will, your operating margins were closer to the high 20%. So just as a follow-up to a previous question, is there anything structurally limiting you from kind of returning to those levels, or is it more about leveraging some of these investments over time that you were talking about? Thanks so much.

Brian Andrews:

Yeah. Again, I don't have a whole lot to add. I mean, we're executing really well. It's really just about internal investments, organic growth and execution, and we're demonstrating that right now. We'll continue to demonstrate that in the back half of this year, and I expect that will continue.

Operator:

Your next question comes from the line of Navann Ty from BNP Paribas. Your line is open.

Al White:

Sure. No idea. I don't have any guess where that stands. There's a competitive product out there that's going through the FDA approval process, but I don't know where that stands. So, if when they get approval and how they decide to launch that product and so forth, we'll obviously be transparent about our expectations and how we think that will impact our business. But until that point in time, I won't speculate on their approvals.

Operator:

[Operator Instructions] Your next question comes from the line of Steve Lichtman from Oppenheimer & Company. Your line is open.

Brian Andrews:

Sure. Yeah. So, Steve, I mean, I mentioned on the last earnings call and I'll say it again here, I mean, gross margins on an as reported basis really should be pretty similar to last year. So that would indicate then that the second half gross margins on an as reported basis are going to be down on an absolute basis versus the first half. The color I gave in my prepared remarks around Q3 really speak to just higher cost inventory and our production levels in Q1 that roll through six months later into Q3. So we have visibility into that. Know that it's going to be it's going to impact our gross margins there. And then, of course, when we look at the impact of FX to gross profit, we can see that FX in Q3 is worse than in Q2 and frankly and it's also worse than in Q4. So that's driving Q3 a little lower than Q4. But to get to sort of a gross margin that's pretty similar to last year, your second half gross margins are a little bit down versus the first half.

Brian Andrews:

Sure, Steve. No change in my commentary. I mean, I said, I think the last quarter and maybe the prior quarter that we expect free cash flow to be about $100 million higher than last year. Obviously, taxes, interest, FX, all are at detriment this year and that's providing a bit of a headwind and a limiter to how much higher. So, I'd say we're doing the right things. We're driving free cash flow higher and, obviously, CapEx is a big part of that. I'll talk about the capacity expansion and CapEx is going to be high again this year. So, but it's all for the right reasons and we'll continue to drive better free cash flow as we look forward.

Operator:

That concludes our question-and-answer session. I will now turn the call back over to Al White for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good afternoon. At this time, I would like to welcome everyone to the Q1 2024 Cooper Companies Earnings Conference Call. [Operator Instructions]

Kim Duncan:

Good afternoon, and welcome to Cooper Companies First Quarter 2024 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are AL White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer.

Brian Andrews:

Thank you, AL, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to our earnings release for a reconciliation of GAAP to non-GAAP results.

Operator:

[Operator Instructions] Your first question comes from the line of Craig Bijou with Bank of America.

Albert White:

Sure. Yes. Absolutely, I'll cover that. Several comments, I guess, as we think about it. You're correct, the contact lens market is strong right now, and it doesn't show any indications of slowing down. So we're -- we, as an industry, are in pretty good shape.

Larry Biegelsen:

I'll echo my congratulations on the quarter here. AL and Brian, I actually wanted to start with margins and then one on CSI. So Brian, the gross and operating margin were up nicely in Q1. How do we think about the gross margin and operating margin for fiscal 2024 and the phasing? It seems like we could see upside to the margins based on what's implied in the guidance from what I can tell.

Albert White:

Yes. We'll see how fertility does on a quarterly basis, right? I mean underlying -- the underlying factors that drive fertility are continue to be strong. And I believe we're going to continue to put up strong fertility growth moving forward. When it comes to the growth of 5% to 7%, you are correct, right? I would still say, even with the strength of PARAGARD in Q1. And by the way, I think we're going to have a good quarter with PARAGARD in Q2. I would still kind of guide people to say, "Hey, that's going to be roughly flat on a year-over-year basis", due to ultimate volume demand and maybe some competitive entrants into that market. Now maybe that doesn't happen, and you'll get some upside from that. So you could argue there's a little bit of conservatism in that number. But after one quarter, I think taking it from 4% to 6% up to 5% to 7% is probably enough. And hopefully, we're able to certainly meet that if not beat that.

Jeffrey Johnson:

So AL, maybe a similar question, as Larry just asked on CSI, but for CVI, you're taking that up 100 basis points for the year. This first quarter came in right exactly where you guided right at the 7%, so it does imply an acceleration over the back half. So with 1Q being where you expected, what gives you the confidence to raise this early in the year to faster growth over the next few quarters, number one?

Albert White:

Yes. Yes. Great question, Jeff. Well, in Q1, we did 7%. It was a strong 7%. I mean we almost got ourselves to round up to 8%. So a good solid Q1 to start the year off. I do think we'll get ourselves back to double digit. As a matter of fact, I think we've got a good chance to get to double digit right away here in Q2.

Jeffrey Johnson:

Fair enough. And then, Brian, if I could ask a clarifying question on the gross margin commentary you made. You were up 100 -- what was it, 160 basis points year-over-year in the first quarter. You're now talking kind of flattish for the year. It implies somewhere around 50 basis points down year-over-year each of the next 3 quarters or maybe it doesn't gate out perfectly even like that. But is that just simply because currency was plus 100 basis points year-over-year in the first quarter, and it looks like in the second and third quarter, it's going to swing back to a negative? Is that just purely currency? Is there something else in there that would get the gross margin from up so nicely in Q1 year-over-year to down a decent amount year-over-year in the balance of the year?

Operator:

Our next question comes from the line of Joanne Wuensch with Citi Group.

Albert White:

So you'll see MiSight in sphere, is where we'll report that. And we consolidated ultimately because I think it's just a better representation of how we look at the business, combined with competitive dynamics. And that was really the reason behind it. Yes.

Albert White:

Yes, sure. So for SightGlass, most of the JV shows up below the line, below operating income. It's a loss, as you can imagine right now, as we continue to invest in it. So we just run that through our P&L. And that's the way it will be moving forward other than if all goes well, that will turn obviously to a profit, and we'll report that below the line.

Operator:

Our next question comes from the line of Anthony Petrone with Mizuho Group.

Operator:

Our next question comes from the line of Jason Bednar with Piper Sandler.

Albert White:

Yes. As a general answer, I would say that our fit data is certainly in front of what our current market share is. And that's a good sign, right? And we've been running that way for a little while here, and we're continuing to run that way. The only caveat I would put on that or asterisk, if you will, is sometimes it's hard to get that data all around the world. We get that through GSK and a few other sources. But I'm comfortable continuing to say that our fit data is in excess of our market share, which is a really good sign for us.

Albert White:

Sure. I think that as we look forward here, where you're going to see growth is going to continue to be what you've seen, meaning we're going to do well in torics and multifocals. We have a great position in those categories and leadership position, right? We do really well. I think you're going to continue to see strong numbers there. The other place that you'll see strong numbers, we're doing well from a fit perspective is in the daily silicone hydrogel side of things. Now that would include some torics and multifocals, but also on the sphere side.

Operator:

Our next question comes from the line of Patrick Wood with Morgan Stanley.

Albert White:

Yes, it's way underpenetrated. So I don't have the numbers right off the top of my head, but I would tell you, it's definitely underpenetrated in the U.S. market, and the U.S. market is by far the most penetrated and it's still solidly underpenetrated. When you go outside of the U.S., it would be way underpenetrated.

Albert White:

Yes. Yes, good strong number in Europe. I think we're going to continue to have them. We have just a fantastic team there. Our commercial team is just killing it, and they have for a number of years. So I think when you combine the strength of our team over there, the rollout of products, we're going to get some new products in there. We're going to expand some of the products that we currently have put ourselves in a better position to sell.

Operator:

Our next question comes from the line of Robbie Marcus with JPMorgan.

Albert White:

I'm kind of raising my eyebrow. I'm not sure what you're referring to, which means that's probably a really good sign because it wouldn't be applicable to us.

Albert White:

Sure. Yes, we had Ortho K growth around the world. So our team continues to do well with Ortho K but within China, it's very bumpy. I mean, we grew, what, 30 -- upper 30%, 39% or something like that in Q4 and down 10% here. So it's pretty bumpy. And whether that's channel fill or some other activity that's happening in China, that China is -- I believe, going to continue to be bumpy for us. Now we're -- that's not a huge market for us, as you know. So I'm not going to claim to be an expert in China. But we are seeing some volatility with respect to the Ortho K market and certainly within China.

Operator:

Our next question comes from the line of [ Chris Scally scale with Nephron ].

Albert White:

I guess I would probably stick with the 5% to 7% right now, but I would certainly lean towards the upper end of that.

Albert White:

Yes, that's really an interesting one. Spectacles are going to become the first line, if you will. Because when a child walks in the door, and we're talking about children, right? So 5 years old up to 13, 14 years old, the easiest fit by far for the optometrist is to put them in glasses. And I think that, that's really going to push the myopia management market forward because every single optometrist will be able to fit a child in glasses and get them out the door. And I don't know why you wouldn't do that. It'd be almost malpractice not to put somebody in glasses and treat their myopia progression.

Operator:

Our next question comes from the line of Steve Lichtman, with Oppenheimer & Company.

Brian Andrews:

Steve, yes. So I guess what I'd say is we talked about free cash flow last quarter being up versus last year, probably about $100 million this year. I would say that the first half of the year is we're going to see sort of similar kind of free cash flow numbers as we saw in Q1 and Q2. And then I would expect will reflect nicely in Q3 and Q4. So cash flow conversion will be improved. I'd say as a percentage of revenues, this is going to be kind of a, I would call it, a high. I mean, it should be pretty similar to last year on a percentage basis. But as we look at next year and the years thereafter, I would expect it to come down on a percentage basis.

Albert White:

Well, I think we'll continue to invest as we are now. Once we get FDA approval, we'll work with EssilorLuxottica. I have conversations about the best way to launch that and how to capitalize on the FDA approval. So we'll continue to spend on it right now, supporting that product and launches around the world and things we're trying to accomplish, including the clinical work and so forth that we're trying to do.

Operator:

Our next question comes from the line of Brett Fishbin with KeyBanc Capital Markets.

Albert White:

Yes, absolutely. One of the challenges that optometrists have with MiSight is they bring the child in. They have to talk to the child. They have to explain what contact lenses are, how to put lenses in, take lenses out. They got to explain to the parent what myopia is and the progression of myopia. The process takes a little while.

Jonathan Block:

I'll try to be somewhat brief, 2 quick ones. First on PARAGARD, I don't know, I just feel like the talk track has seemingly improved maybe from 3 months ago, nothing has really changed from a regulation standpoint. AL, am I right? Is there anything behind that where, again, you had a decent beat in the quarter. You talked about a pretty good start in fiscal 2Q. It just seems a little less dire, if correct? Is there something more to it?

Jonathan Block:

Okay. And second quick one, just within CVI, just cleaning up a little bit. The overall 7%, I think, was in line with estimates. You guys sort of signaled that. But from ROC, EMEA was decently ahead, APAC below and anything to call out specific to APAC? Because when I look at the year ago comp, it was actually one of the easier ones from fiscal '23. I don't know if that's where we sort of go from a capacity standpoint. But maybe if you could just elaborate on that?

Issie Kirby:

We'll just stick to one. I mean obviously, you have your handful with MyDay and the strength of that product. But I would love to know how you're thinking about potential new innovation within the [ Filshie Clip ] space, potential new product launches. I think it's been close to 10 years now since we saw MyDay first hit the market. So I guess, what is next? How are you thinking about new launches? And to what extent does capacity right now in your ability to introduce perhaps a new lens family?

Issie Kirby:

Okay. And then just a quick follow-up, if I may, just on daily penetration. I mean we've talked a lot about the runway in toric but really I guess what's the runway like in daily? Just in terms of units where do you see it currently sitting, I guess, for 2023? And where do you think the ceiling really is for dailies in terms of units?

Operator:

There are no further questions at this time. I'll now turn the call over to AL White, President and CEO.

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Thank you for standing by and welcome to the Q4 2023 Cooper Companies Earnings Conference Call. I would now like to welcome Kim Duncan, VP Investor Relations and Risk Management to begin the call. Kim, over to you.

Albert White:

Thank you, Kim, and welcome everyone to Cooper Company’s 2023 Fiscal Fourth Quarter and Year-End Conference Call. This was a fantastic year for Cooper as we finished with all-time record revenues of almost $3.6 billion, and we closed the year on a really positive note with CooperVision posting its 11th consecutive quarter of double-digit organic growth and CooperSurgical posting record quarterly revenues driven by our fertility business posting its 12th consecutive quarter of double-digit organic growth. Truly tremendous accomplishments by phenomenal teams. We’ve now entered Fiscal 2024 with a lot of excitement and focus on executing on our long-range strategic objectives, including gaining market share, driving profitability, launching innovative products and services, and maintaining our fantastic Cooper culture. Moving to the quarterly numbers, consolidated revenues were $927 million, up 9% organically year-over-year. CooperVision posted revenues of $623 million, up 11% organically, and CooperSurgical posted revenues of $304 million, up 7% organically. CooperVision’s growth was led by strength in our daily silicone hydrogel portfolio, and CooperSurgical’s growth was led by a very strong quarter in our fertility business. Margins improved and profits were solid with non-GAAP earnings per share of $3.47, up 26%. For CooperVision, and reporting all percentages on an organic basis, revenue growth was strong and diversified. The Americas grew 12%, EMEA grew 9%, and Asia Pac grew 10%. With all three regions having success with our innovative products, market-leading flexibility and growth in key accounts. Within categories, Torics grew 15%, Multifocals grew 18%, Single-use Sphere grew 7%, and Non-Single-use Sphere, other grew 4%. Within modalities, Daily Silicone Hydrogel lenses grew 19%, and our silicone hydrogel monthly and two-week lenses Biofinity and Avera vitality grew 8%. Turning to products, and starting with our high-growth daily silicone hydrogel portfolio, we continue to outperform expectations with MyDay. We just passed the two-year anniversary of the MyDay Multifocal launch, and the pace of growth on this product remains outstanding. The unique combination of an advanced multifocal design paired with an easy-fitting system has resulted in very high satisfaction levels, including a 98% fit success rate in two pairs or less. This makes it a win for the doctor and the patient, and it shows in our results and momentum. From a personal perspective, as I shared last quarter, I now wear MyDay Multifocals, and I continue to be amazed at how easy the lenses are to insert and remove, and how fantastic my distance and near vision are. And I put these lenses in as soon as I wake up, and I don’t take them out until bedtime. I may be biased, but I truly believe these are the best multifocal lenses on the market, and our sales growth certainly supports that. Moving to MyDay Toric, demand remains very strong following the rollout of our parameter expansion across North America and Europe. This success is due to the product’s market-leading torque design, which mirrors Biofinity’s design, and our industry-leading SKU range. In MyDay Energous, our most recent launch continues to impress eye care practitioners and patients with its innovative digital boost technology designed specifically for today’s digital lifestyle. The lenses deliver fantastic comfort, and sales are exceeding our expectations. And I’m proud to say that MyDay Energous was recently voted the most innovative product of 2023 by U.S. eye care practitioners, an awesome accomplishment and a great recognition for our team. With the success of these MyDay products, we certainly look forward to rolling them out in additional markets around the world as soon as capacity allows. And while MyDay continues to be our key growth driver in the daily silicone segment, we’re continuing to have success with Clarity, which offers a full family of spears, Torics, and multifocals at a great price point. The initial comfort, excellent handling, and price positioning have led Clarity to be a lens of choice for new wearers. Outside of dailies, demand for our Biofinity family of products remains healthy, led by Torics and multifocals. And I’m excited to announce we’ll be launching our highly successful Biofinity Toric multifocal to several new markets in the coming year in response to extremely strong demand. Avera also had a nice quarter led by Torics. Moving to myopia Management. We posted revenues of $35 million, up 41%, with MiSight up 46%. This was another excellent quarter for MiSight, powered by growth in the Americas and EMEA, while Asia Pac was flat due to challenges in China. As we enter fiscal 2024, we’re expecting excellent growth, with the positive trends in the Americas and EMEA continuing, and Asia Pac returning to growth as the region has hurtled past stocking orders and is already showing improving trends. Additionally, we’re continuing to see high retention rates, growing momentum in key accounts, and a nice halo effect on our other products. All this adds up to over 250,000 children around the world wearing MiSight and momentum being very strong. MiSight remains the first and only FDA approved contact lens for myopia control, and it’s backed by extensive clinical data. This is a crucial differentiator as the proactive management of myopia becomes standard-of-care within the eye care community to help reduce the -progression of myopia in children, along with reducing the risks of long-term eye health problems associated with myopia, such as cataracts, retinal detachment, and macular degeneration. Meanwhile, our Ortho-K franchise had a nice rebound quarter, growing 37% year-over-year. To finish on CooperVision, the contact lens market grew roughly 7% in calendar Q3, with CooperVision taking share, growing 10%. We expect the market to remain healthy, growing 5% to 7% this coming year, supported by the long-term macro growth trend of more people needing vision correction. It’s estimated that 50% of the global population will have myopia by the year 2050, up from roughly 34% today. This is driven by kids spending more time indoors, and the related greater use of digital screens, among other factors. When you combine this with the ongoing shift to silicone hydrogel dailies, the increasing focus on higher value products and higher pricing, we expect many years of solid growth for the industry. Within this, we expect to remain a leader with our innovation, robust product portfolio, ongoing product launches, strength in premium toric and multifocal products, our fast-growing myopia management business, and our leading new fit data. Moving to CooperSurgical, we posted record revenues of $304 million, up 7% organically. This included fertility sales of $121 million, up 15% organically, which was our 12th consecutive quarter of double-digit organic growth. Within this, we saw share gains around the world and throughout our portfolio, driven by our market-leading products and services, including consumables, capital equipment, and reproductive genetic testing. We also continued investing in geographic expansion, key accounts, and R&D. We’re entering fiscal 2024 as one of the fastest-growing and most innovative fertility companies in the world. We’re developing and launching new products, opening new donor sites, providing extensive training through our Centers of Excellence, expanding in new and existing geographies, and we’re well-positioned to continue delivering success, given our great team, diverse portfolio, and global momentum. For the broader fertility market, the macro growth trends remain intact, starting with women delaying childbirth. Age is a key factor in contributing to the need for fertility assistance, and the median age of a woman’s first birth in the U.S. and within several other developed countries is roughly 30 years old and moving higher. Other growth drivers include improving access to treatment, increasing patient awareness, increasing fertility benefits coverage, and technology improvements to address both male and female infertility challenges. The World Health Organization data highlights that one in six people globally are affected by infertility at some point in their lives, and given that one-third of the underlying cause of infertility is women, one-third is men, and one-third is a combination of the two or unknown, this is an issue that impacts a lot of people and will continue to do so in the future. Moving to office and surgical, we posted sales of $183 million, up 3% organically, with medical devices growing 3% against a very challenging comp. Within this part of our business, we recently closed the acquisition of several highly strategic products from Cook Medical. Given the strength of our medical device team and the success we’re having in the labor and delivery space where several of these acquired products reside, this will be a great deal for us, and I look forward to reporting future results on these products. Stem cell storage posted solid growth of 6%, and PARAGARD was flat, as higher pricing offset declining unit sales. To conclude on CooperSurgical, we take great pride being able to say that every minute somewhere around the world, a baby is born using CooperSurgical products. We’re making a difference in people’s lives, and that’s part of what makes this business really special for us. Moving to fiscal 2024, let me provide comments on revenue guidance, and Brian will cover the rest of the P&L. We expect CooperVision to post strong results and are guiding to 7% to 9% organic revenue growth for the year. The main limiter to this growth is capacity challenges from new wearer demand, especially for MyDay. We expect these capacity constraints to pressure revenues in fiscal Q1, resulting in growth of around 7% for the quarter. We are actively bringing additional capacity online, though, and expect to report high single digit to double digit growth as we move through the year. For CooperSurgical, we’re guiding to full year organic revenue growth of 4% to 6%, which includes another year of strength and fertility, low to mid-single digit growth in medical devices and stem cell storage, and flat to slightly down in PARAGARD due to declining volumes. To conclude, let me say this was a great year for Cooper, and we’ve entered fiscal 2024 with great momentum. But none of this is possible without the incredible hard work and dedication of our employees, so a big thank you to the entire Global Cooper team for another incredible year. And now I’ll turn the call over to Brian.

Operator:

[Operator Instructions] Our first question comes from a line of Jason Bednar with Piper Sandler. Please go ahead.

Albert White:

Sure. Hey, Jason. A couple of things. We’re still going to put out good growth in the first quarter here. I mentioned we think we’ll be somewhere about roughly 7%. We are capacity constrained and that we could grow faster than that if we had more capacity, but a lot of wear demand on that. So we have new lines coming in. We’ll progress through the year bringing additional lines on so that we’ll be able to continue to report upper single digits or even double digit growth in some quarters. When I look at our guidance of the 7 to 9, I think about price. I’ll probably maybe give it in the context of the market, right. Last year, if we look at 2023, the market pricing was about 2% to 3%. We were on the lower end of that. I think if you looked at this year, pricing again in the market will probably be 2% to 3%. We’ll be at the higher end of that. And that’s probably how I would define it. So I wouldn’t read too much into a dramatic delta between our price increases and where I think the market’s ultimately going to be. We did our price increase for some of our pricing at least here earlier in the year and then normal. We’ll see what some of our competitors do with respect to pricing in the coming months.

Albert White:

Yes, I guess my response would be that we grew operating income 11% this year on a constant currency basis. That’s faster than revenues. Our consolidated guidance this year at the midpoint is 7%. And Brian just mentioned that our operating income constant currency growth is 10% to 13%. So that’s leverage again and we’re focused on improving our operating margins and driving success there. So we did it in 23%. We’re anticipating doing it in 2024. And my belief is you’ll continue to see that in the coming years.

Operator:

Our next question comes from a line of Larry Biegelsen with Wells Fargo. Please go ahead.

Albert White:

Yes, the capacity constraints are tied to MyDay. So we have continued to win wearers in MyDay at a faster clip than we were anticipating. A lot of that wearer growth and growth in my day is coming from Torics, especially, which have a wide skew range. So that’s put some pressure on us. So I would kind of say, hey, the success that we’re having, again, in terms of wearer growth has driven some of those capacity changes. Now, we knew it. We saw that stuff. We’ve been investing in CapEx. You can see that in our CapEx numbers. We have additional manufacturing capacity coming online. So we’re in good shape. We’re just running into kind of a little bit more of a very short term issue here where we’ll have a strong quarter, but maybe not a double digit quarter.

Albert White:

Yes, if we had more in MyDay capacity, the guidance range would be higher.

Brian Andrews:

Yes. Hi, Larry. Currency is a negative for both gross and operating margins next year. But gross margins should be pretty similar to last year, obviously up from a constant currency basis. With respect to operating margins, again, with currency is a negative, but it’ll be a little bit better on an as reported basis than last year. We’re getting operating leverage from OpEx. With respect to our myopia management range, I’m sorry with respect to our myopia and management range, we -- Al, do you want to take that?

Lawrence Biegelsen:

Thank you.

Jeffrey Johnson:

Yes, thanks. Good evening, guys. Al, just going back to some of the capacity and supply issues, we hear a letter went out in Japan. I’m not sure if it did in other markets as well, just on some of those supply constraints. So should we be thinking about geographically that 7% is going to be most impacted in the Asia-Pac region, number one? And number two, I think over the last couple of years, as a lot of contact lens companies, you guys included, have dealt with a lot of this rebound and strong move to dailies and that, which is helping fuel that top line. We’ve seen some things pop up, right, on the distribution side, on the warehousing side, some added costs. You are having to put in some extra lines to kind of hit these demand things, which are good. Can you give us any assurances that this year you don’t feel like there’s going to be anything that gets uncovered kind of mid-year that all of a sudden adds some costs or takes away from some of the earnings that are being guided to for this year? Thanks.

Jeffrey Johnson:

Yes, no, you come up against double-digit comp, I get that. So all good there. And then, Brian, if I could just pin you down a little bit on the guidance, on the EPS guidance. I just want to make sure I understand, the pound, the euro, some of those currencies have been kind of in a pretty tight range here over the last few weeks. The yen is what has really strengthened quite a bit in just the last week or two. Obviously, you guys have a pretty big sensitivity to the yen. So when you say you’re using current rates, I’m assuming you guys didn’t update your guidance this morning as the yen was off or strengthened a couple, two and a half, three points. So just, are you at $148 on the yen, $146 on the yen, $144? I know it’s ridiculous to have to single currency, but just the sensitivity is there. So I’d like to know kind of where we’re starting the assumptions on that $1360 to $14. Thanks.

Jeffrey Johnson:

Thank you.

Jonathan Block:

Yes, guys. Great. Thanks for the questions. I want to just stick with the constraint for a second. And Al, you always mention the challenges on capacity. And I think you’re always very transparent about it. But, you have been seemingly staying ahead of the demand curve, unlike some of your competitors. And what recently changed? Because I wouldn’t think the demand in an industry that’s very consistent, in terms of the growth rate, can the demand really spike suddenly in a six, eight, ten week timeframe that calls you to be from, in front of it to behind it? Or was it really acute because it’s in one particular part of the portfolio? And then maybe if that’s the case, how do you have the confidence that you are able to rectify or reconcile it, over the next two to three months?

Jonathan Block:

Okay, thanks. That was great, color. And just to shift right over to you, and sorry if I missed this earlier on EPS, but anything to call out regarding the cadence throughout fiscal 2024, as we think about FX being particularly violent last year and maybe, I don’t know, less leverage in fiscal 1Q due to some of those constraints that are most acute, in the current quarter. Thanks.

Jonathan Block:

Fair enough. Thanks, guys.

Unidentified Analyst:

Good afternoon. This is actually Anthony Hufford [Ph], Joanne. Thanks for taking our questions. Just one from us. Are you -- do you think you’re losing any potential new customers related to these capacity challenges in MyDay?

Unidentified Analyst:

Thanks.

Craig Bijou:

Good afternoon, guys. Thanks for taking the questions. I wanted to start with a follow-up on FX, and obviously it’s been volatile. To the extent that the dollar weakens over the course of your fiscal year, I guess I just wanted to get a sense for how you guys plan to either let that fall to the bottom line, or if there is potential reinvestment of some of the benefits there.

Craig Bijou:

You want the recent trend to continue.

Craig Bijou:

Yes, understood. Then maybe for you, Al, just any update on Cyclas [Ph] and the timing or any communications or maybe even any expectations that you expect on the data front or that you’ve heard from the FDA? Just what’s the timing? What’s the thinking on Cyclas?

Craig Bijou:

Okay, thanks for taking the questions, guys.

Robbie Marcus:

Oh, great. Hello, and thanks for taking the questions. Two from me. First on free cash flow, it looks like you came in plus or minus $170 million on the year. I think that this time last year, you got it to $300 million. What drove the shortfall in 2003, and how should we think about free cash flow generation in 2024?

Robbie Marcus:

Great. And apologies on my math. Maybe more of a strategic question here. You’ve had the past few years, double-digit organic top-line growth, yet we’re just not seeing it translate down to the bottom line for a number of reasons, whether it’s the operating margin or currency. So how do you think about your commitment to double-digit EPS growth on a reported basis? And are there any things you could do moving forward to help with the consistency? I don’t know if it’s a return to hedging or something else, but how do you think about the necessity of giving us reported EPS leverage growth?

Robbie Marcus:

Great. Thanks for taking the question.

Steven Lichtman:

Thank you. Al, you mentioned expected price increases for the industry here near term at about the same year-over-year level as we saw over the last 12 months. What is your confidence in the sustainability of price increases for you and the industry as year-over-year inflation moderates? I think you’ve said that 2% to 3% is maybe a point, point and a half above historical levels.

Steven Lichtman:

Got it. Thanks, Al. And Brian, just a follow-up on the tax rate for FY24 here. Does that contemplate Pillar 2 or based on your fiscal year, it doesn’t? And if it doesn’t, how should we be thinking about that over the medium term?

Steven Lichtman:

Got it. Thank you.

David Saxon:

Great. Good afternoon. Thanks for taking my questions. Maybe one on CBI, one on CSI. For CooperVision, just wanted to ask on MiSight, what inning are we in in terms of MiSight coverage? And for the payers that are covering it, like Aetna and Kaiser, what portion of the cost do they actually reimburse?

David Saxon:

Okay. And just I guess how much they’re reimbursing. And then I’ll just ask my second question on PARAGARD. I mean, volumes, obviously, have been kind of flat to down, especially this past quarter. So just wanted to get your updated thoughts on that product. Is there anything you can do to drive recovery in volumes? Or is PARAGARD growth going to be primarily driven by pricing over the long term? And if so, I guess at what point does that ability to drive growth through pricing kind of go away? Thanks so much.

David Saxon:

Great. Thank you.

Navann Ty:

Hi, good afternoon. Thanks for taking my questions and the callers so far. So will the 2024 share gains be in contact lenses and CooperSurgical as well, and will they be driven by innovation? And can I also please ask about your capital allocation priorities after the maternal health acquisition?

Navann Ty:

Thank you.

Anthony Petrone:

Thanks. Maybe one on Vision, one on Surgical. On the Vision side, going back to MiSight, maybe just to recap on what you’re seeing from early patient adopters. Are there any noticeable drop-offs, or is the attach rate still high? And then when you think of prescribers, the early adopters on the prescriber end, are they writing more prescriptions for MiSight? And then just really quickly on surgical, when we think of just kind of the M&A landscape, we would assume that IBF, there was issues there from antitrust, so that wouldn’t be an area. What other areas in women’s health are potentially attractive to CSI? Thanks.

Anthony Petrone:

Thanks again.

Albert White:

Great. Thank you. Just to summarize, record year, record revenues, and vision, surgical, strong OI growth this year. We’re giving guidance, and we believe we’re going to have another strong year this year all the way through the P&L. So I’m excited about where things stand today, and I’m looking forward to this year because I think it’s going to be a really good year for us. So thank you to all of our employees around the world who killed it this year and are continuing to do an amazing job. And thank you for everyone who called in, and we’ll talk later. Thank you. Thank you, operator.

Operator:

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2023 Cooper Companies Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin your conference.

Albert White:

Thank you, Ken, and welcome, everyone, to Cooper Company's third quarter fiscal 2023 conference call. Demand for our products and services remains very healthy, and we solidly exceeded revenue expectations, posting record quarterly revenues of $930 million, driven by strong sustainable organic growth. CooperVision reported record quarterly revenues in its tenth consecutive quarter of double-digit organic revenue growth and CooperSurgical reported record quarterly revenues with its fertility business posting its 11th consecutive quarter of double-digit organic revenue growth. Our teams are delivering impressive results, our momentum is strong, and we're executing well on our strategic growth initiatives. Moving to the numbers. Consolidated revenues were $930 million, up 12% organically. CooperVision posted revenues of $630 million, up 13% organically and CooperSurgical posted revenues of $300 million, up 9% organically. Exceeding $600 million in quarterly revenues was the first for CooperVision and exceeding $300 million was the first for CooperSurgical. CooperVision's growth was driven by our daily silicone hydrogel portfolios and CooperSurgical's growth was led by our fertility business. Non-GAAP earnings per share were $3.35. For the quarter and reporting all percentages on an organic basis, CooperVision's revenue growth was strong and diversified. By geography, the Americas grew 12%, EMEA grew 13% and Asia Pac grew 16%. Throughout the world, we're leading with innovation tied to new products, expanded product ranges, market-leading flexibility, and growth in key accounts. Within categories, spheres grew 9%, Torics grew 16% and multifocal grew 19%. Within modalities, Daily Silicone Hydrogel lenses accelerated and grew 23% with MyDay leading the way. Daily silicone hydrogel lenses continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio with MyDay and Clarity available on a wide range of spheres Torics, and multifocal. And lastly, our silicone hydrogel monthly and two-week lenses Biofinity and Avera vitality grew a healthy 8%. Turning to products and starting with our high-growth daily silicone hydrogel portfolio, we're six months into the U.S. launch of our highly innovative MyDay Energous lens and the ramp is progressing exceptionally well. This premium lens taps into a fundamental wear or need catering to the demands of today's lifestyle by incorporating digit -- digital boost technology to alleviate the impacts of digital eye strain. It's a big success with eye care practitioners and wearers alike, our sales momentum is very strong. We're also seeing high demand for MyDay Toric as we continue rolling out our parameter expansion across North America and Europe. This demand is being driven by its market-leading Toric design, which mirrors Biofinity's design, and our industry-leading SKU range, which is by far the widest Toric range in the daily market. this broad range, eye care practitioners are capitalizing on the opportunity to offer their two-week and monthly Toric wearers the option to enjoy the freedom of wearing a daily Toric lens. And last but not least, MyDay Multifocal continues to take considerable share around the world, reestablishing CooperVision's position in the premium multifocal market segment. We continue to hear from eye care practitioners how easy the lens is to fit and how fantastic the visual acuity is. And I can speak to this personally as I was recently fit in contact lenses for the very first time in well with MyDay multifocal. The process was remarkably fast and easy, and these lenses are truly amazing. To conclude on MyDay, this technologically superior family of products continues to deliver high growth and our momentum is fantastic. And lastly, within the daily segment, our Clarity family of lenses continues to perform well by offering a high-quality product at a mass market price point. It was especially nice to see strength with Clarity in several international markets, including an acceleration of sales in Asia Pac. Outside of dailies, demand for Biofinity remains strong, led by Toric, multifocal, and our custom offerings and Avera vitality had a solid quarter led by Toric. Moving to myopia Management. We posted revenues of $30 million, up 30%, with MiSight up 53%. MiSight accelerated this quarter, posting its best growth for the year, even with China declining year-over-year due to tough comps against the stocking order last year. Meanwhile, our Ortho-K franchise had a difficult quarter tied to portfolio realignment and weakness in China. Fiscal Q4 started off well, though, and we remain comfortable with our full-year guidance of $120 million to $130 million, albeit probably at the lower end, as strength in MiSight like won't offset Ortho-K often. Regarding MiSight, we're seeing improving fitting trends around the world, driven by key accounts, higher-volume pediatric optometry practices, and from the successful integration of the sales process from our specialty lens unit into our regular sales channel. We're also continuing to see very high retention rates, including roughly 90% in the U.S. along with an ongoing positive halo effect with MiSight practitioners accelerating their use of other CooperVision lenses. We also recently confirmed that Aetna is now covering MiSight under medical plans to opt in to lens coverage which represents 70% to 80% of Aetna plans. This all is Kaiser, who started covering MiSight through Vision Care plans roughly a year ago. This type of coverage is exciting, but it's still very early in the process, and we have a lot of work to do to ensure eye care practitioners and families understand what it means. To conclude on MiSight, as a reminder, it's the first and only FDA-approved contact lens for myopia control, and the product is backed by extensive clinical data. This is a critical differentiator as the proactive management of myopia become standard of care within the eye care community to help reduce the progression of myopian children along with reducing the risk of long-term eye health problems associated with myopia such as cataracts, retinal detachment, and macular degeneration. To finish on CooperVision, the contact lens market grew roughly 8% in calendar Q2 with CooperVision taking share at 11%. We expect the market to remain healthy, supported by the long-term macro growth trend and more people needing vision correction. It's estimated that 50% of the global population will have myopia or nearsightedness by the year 2050, up from roughly 34% today. This is driven by kids spending less time outdoors and the related greater use of digital screen indoors, among other factors. When you combine this with the ongoing shift to silicone hydrogel dailies, the increasing focus on higher value such as Torics and multifocals, and higher pricing, we expect many years of growth for the industry. Within this, we expect CooperVision to remain a leader with its market-leading innovation, robust product portfolio, ongoing product launches, fast-growing myopia management business, and leading new fit data. Moving to CooperSurgical. We posted 9% organic revenue growth, including fertility sales of $122 million, up 11% organically for its 11th consecutive quarter of double-digit organic growth. Our fertility business continues to perform at a very high level, and the future is bright with strong macro trends supporting the industry's growth. For the quarter, we once again realized success from our diverse offerings within consumables, capital equipment, reproductive genetic testing, and donor activity. And regionally, we posted solid growth in the Americas, EMEA, and Asia Pac. This was accomplished while investing in multiple areas, including geographic expansion, key accounts, infrastructure build-out, and R&D. We continue to launch new products and roll out existing products and new geographies, and we're clearly leading the way as one of the most innovative fertility companies in the world. In summary, we're in a fantastic place, and we're well-positioned to continue delivering success given our great team, diverse portfolio, and global momentum. Regarding the broader fertility market, the macro trends that are driving global growth remains strong, and we're continuing to see a lot of exciting activity in the space. The industry has multiple growth drivers, starting with women delaying childbirth. Age is a key factor in contributing to the need for fertility assistance and the median age of a woman's first birth in the U.S. within several other developed countries is roughly 30 years old and continuing to move higher. Other growth drivers include improving access to treatment, increasing patient awareness, increasing fertility benefits coverage, and technology improvements for both male and female and fertility challenges. The World Health Organization recently released updated data showing that one in six people globally are affected by infertility at some point in their lives. And given that one-third of the underlying cause of infertility is women, one-third is men and one-third is a combination of the two or unknown. This is an issue that impacts a lot of people and will continue to do so in the future. Moving to office and surgical, which includes medical devices, PARAGARD, and stem cell storage, we posted sales of $178 million, up 8% organically. Within this, Medical Devices reported strong growth of 11%, driven by positive procedure volume and strength in several core products. In particular, our surgical and labor and delivery products performed well. Meanwhile, PARAGARD grew 7% as we saw some bounce back from last quarter's softness, and our stem cell storage business grew 4%, in line with expectations. To conclude on CooperSurgical, it's with great pride that we say that every minute, somewhere around the world, a baby is born using CooperSurgical products. Our business makes a difference in people's lives, and we love that. We're also operating in several markets that have excellent long-term growth characteristics, such as fertility. So, we feel good about where we're positioned and what the future holds. Before turning the call over to Brian, let me make some high-level comments on our strategic growth initiative. The last couple of years has shown the strength of our business with revenue growth accelerating as we exited the COVID pandemic. This is a result of a multiyear effort concentrated on investing to drive sustainable organic growth, and we've done this while completing several successful strategic acquisitions. We intend to continue with this growth strategy moving forward. And embedded within this is investing in our people, improving our infrastructure, expanding areas such as sales and marketing, investing in R&D. With that, let me conclude by saying how proud I am of our teams. None of this is possible without the dedication and incredible hard work of our employees. Now let me turn the call over to Brian.

Operator:

[Operator Instructions]. Your first question comes from the line of Jon Block from Stifel. Please go ahead. Your line is open.

Brian Andrews :

Yes. So just to answer the first part of your question, Jon, you're correct. It was really purely a gross margin miss that softened our EPS delivery in the quarter. Outside of what I provided for next year, in terms of this year, I mean, we're going to have margins sequentially up versus Q3. And like I said, OI growth is still -- we're still maintaining OI growth on a constant currency basis this year, growing double digits at 11%. And same kind of direction for next year. We're not -- I'm not going to get into giving guidance now. We'll do that in December, and I'll give more color in a few months once we get there.

Albert White :

Sure, Jon. I think we're on a pricing perspective, I think that's still positive. We've talked about that for a few quarters now, and I would probably just reconfirm the statements I've made in prior quarters, which is, the market is somewhere in that 2% to 3% range. We're probably a little on the lighter side of that. I would think that, that will probably improve some for us. But I think you'll see additional pricing in the market as we continue to move forward since inflation seems like it's lingering. Ability to manage growth. We've got our challenges too. We do have some capacity issues in different spots, and we've had some challenges through our supply chain. That's for sure. I think we're in a decent place. We're obviously putting up some good revenue numbers. Demand is strong. It's costing us some money. So, I'd love to get some additional leverage, especially from operating expense leverage as we move forward out of distribution in some areas. But right now, we're pretty focused on delivering really high-quality customer service, meaning somebody orders a product. We're able to make that product and we're able to ship it and get it in their hands. And sometimes that costs us a little bit more money than we'd like for it to cost us. But I think we're in really good shape to be able to continue to hit revenues. It's just a matter of leveraging that, which I think you're actually going to see over the coming years. I think next year will be a more positive year. And I think the year after that, it will probably be even more positive.

Lawrence Biegelsen:

Just two from me here, Just maybe Brian, on fiscal '24 commentary. Interest expense, should we expect that to be stable and FX headwind to EPS as of today? Is that about $0.50? And I had one follow-up.

Lawrence Biegelsen:

Fair enough. And Al, you guided to 6% to 8% organic growth for total Cooper entering this year. You're guiding to 9% to 10% now. What are -- how do you think about the sustainability of that momentum next year? Just any color on that would be helpful. Thank you.

Operator:

Your next question comes from the line of Jeff Johnson from Baird. Please go ahead. Your line is open.

Albert White :

Clarity in the U.S. is doing fine. It's -- we don't talk about or I don't talk about it may be as much. And I'm not sure that's necessarily fair to Clarity, if you will. It's just that MyDay is performing so well. The numbers are so strong in MyDay kind of across the board, whether it's Energy’s, which is going gangbusters or the Toric or the multifocal or this year, right, that sometimes I talk about Clarity a little, yes, a little less. But no Clarity is still doing okay. It did accelerate its growth actually in Asia Pac, which was kind of nice to see, but it's still doing okay in the U.S. from a share gain perspective, I would think that -- yes, I would think moving forward, the rate of share gains that we've been having should be somewhat similar for the next several years just based on our product launches and the activity we have going on. I mean we're still pretty active with a lot of the product launches and the product expansion, geographic expansion of some of those products. So yes, I think we'll continue to take share for quite a while.

Albert White :

Yes, $51 million, you're right. No, nothing changing in my view. That was predominantly pricing. And there's always a little bit in all of our businesses, right, when it comes to a little bit of channel inventory and some of that kind of stuff. But now the driver on that is clearly pricing.

Operator:

Your next question comes from the line of Matthew Mishan from KeyBanc Capital Markets. Please go ahead. Your line is open.

Albert White :

Yes, Matt, I mean I won't get too detailed on projects, but I will say within CooperVision, certainly, we've got higher R&D associated with myopia management. A lot of our MiSight activity is in there. So that's definitely occurring. Within our CooperSurgical business, there's increased R&D for a couple of different products actually, that we're seeing in our -- which would include in our fertility space also. But it's definitely tied to product development within both businesses.

Albert White :

Yes. Well, I would say that right now, Fertility is a global business, no question, right? We have a very big European presence, and we have an Asia Pac presence in some countries, much stronger than others. But no, we're investing in that business right now to drive international growth. We did it here in Q3. We're going to in Q4. We're going to do definitely more investing next fiscal year to support the long-term growth of the fertility franchise that's all embedded within the numbers Brian gave you of 11% this year, constant currency OI growth, and within the objective next year to deliver low double-digit constant currency OI growth. So yes, I mean we're continuing to invest. There's no question about that, and fertility is definitely one of the areas we're investing in.

Jason Bednar:

Good afternoon. Thanks for taking the questions. I'd echo the congrats here on the good quarter. Al and Brian, on contact lenses that performance is really good versus the market. As you called out in the calendar quarter, your fiscal quarter, you had the benefit of trading in April for July, which was definitely a good trade. But it also seems like just based on the fourth quarter guidance, you're seeing good results for your core business. Can you elaborate what's changed in your guidance for the fourth quarter? I think you're going to have street numbers that are moving up a little bit. Is it a certain product category or geography where you're more comfortable or confident today?

Jason Bednar:

Okay. And then maybe as a follow-up because I wanted to ask on your key account strategy that's actually -- it seems like a maybe a little bit of a recession hedge, but as you said, your higher value lens are doing better here. I don't think I caught an update on the key account strategy, but maybe just talk about what you're seeing there with respect to share gains and then any shift in terms of emphasis higher or lower on that strategy maybe as we look ahead to fiscal '24.

Jason Bednar:

Okay, helpful. Thank you, so much.

Joanne Wuensch :

Thank you. It's Joanne Wuensch. Very nice quarter. I'm trying to peel through your commentary about operating margins next year. And I want to make sure I understand that. When you talk about low double-digit operating margin expansion, is that the margin? Is it the dollar? And is that FX? Just peel that away, so to make sure we set expectations appropriately.

Joanne Wuensch :

Okay. Are you in a position to be able to give us a guidance number for revenue for next year? a range? Should we go back to thinking about how you entered this year at 6% to 7%? Or is that not even the right way to think about things?

Operator:

Your next question comes from the line of Anthony Petrone from Mizuho Securities. Please go ahead. Your line is open.

Albert White :

Yes. I think that math all checks out, and I'll let Brian confirm that, but that makes sense to me. And I do agree with your comment about potentially being able to get incremental leverage, if you will, I think one of the issues that we're running into here, and I think we'll continue to have a challenge with next year is that we do have very strong demand right now. And logically, you might think, hey, that's great, right? You get those incremental revenues and all that flows through to OI. But in order to support that growth right now with the infrastructure investments we're doing, combined with the geographic expansion and everything else that's going on, you're not seeing that right now. So what history would tell you based on Cooper? I've been here a long time now, what history would tell you is when we have this stuff happen, we get comfortable with the organic growth, if you will, the better organic growth that we have. And it certainly appears to be sustainable higher organic growth than we have had historically. Once we get comfortable with that, and I mean by that is you get these facilities in place, you get the packaging lines in place and the shipping lines and everything else and Brian touched on some of that. Once you get that stuff in place, you start leveraging it and you're able to really drive some margin expansion. I think that will happen. As a matter of fact, I'm highly confident that, that's going to happen. But I think we're going to continue to deal with some of those challenges over the next year if you will, or some time frame managing that growth tied to the investment activity that we're talking about, whether it's in the fertility business, where we're putting a lot of dollars or within our myopia management business, especially MiSight, where we're putting a lot of dollars right now. So, I think when you put that all together, and you step back and you go, okay, low double digits kind of makes sense for this year, it makes sense for next year. It will be interesting as we move forward and we build out some of this infrastructure and are able to leverage it, what will happen in some of the years after that.

Albert White :

Yes, Brad, that is a great question and a great point on that SKU range. I mean we do take the position that if a patient walks into an optometrist's office, they're able to be fit in a CooperVision product. So, we do have very wide SKU ranges, largest in the industry, there's no doubt when you look at like the daily Toric, the MyDay Toric is by far the widest SKU range that's available. It is expensive to manufacture those. It's expensive to manage them through your logistics chains through -- chain through distribution and so forth. But you're exactly right. You move through a period of time where you're increasing your production capabilities you're improving your distribution capabilities and so forth, you get that behind you and you're really, really in an excellent place, and it does take several years in order to get there. So, we are on that journey right now. We've been there before. We've done it before. We've done it successfully before. I'm highly confident the team will deliver again. But that is another great example of one of the challenges we're dealing with right now around our growth.

Patrick Wood :

Thank you, so much, for taking my questions. I guess, the first one maybe on my side. You alluded to some of the work to happen on consumer awareness on that side. I mean you've got better coverage now. Do you think the marginal dollars need to be spent on the optometrist to convince the consumer? Or are we thinking DTC? And why shouldn't we expect quite a lot of money to go in here to take advantage of the better coverage?

Patrick Wood :

Totally. And then maybe just one more. In vision, I guess, I think I know the answer to this because there's been supply chain challenges with some of your peers. But do you have any sense from like sell-in relative to sell out? Like is the channel presumably quite lean in terms of inventory side of a lot of players? Or is it quite normalized at the moment?

Patrick Wood :

Thank you, so much.

Robbie Marcus :

Okay, thanks for taking my question. And I'll add, congrats on a good quarter. Two for me. Maybe first, gross margin and operating margin are both fairly below pre-COVID levels. How do you think about your ability to return to the pre-COVID margins, particularly on operating margin? And how far out is that event?

Robbie Marcus :

Great. And maybe one on free cash flow. I know this year has a lot of investments, you're at about a 48% free cash flow conversion through third quarter, fourth quarter is going to be even lower. So, let's say you end the year 45% or lower on conversion. Same sort of question. Are you comping yourself against the med tech average of about 80%? And when do you think you might be able to get back up to those levels? Thanks.

Operator:

Your next question comes from the line of David Saxon from Needham & Company. Please go ahead. Your line is open.

Albert White :

Yes, China MiSight -- so we don't have a big business in China. We just don't do a lot in China. But what we do there, and certainly myopia management is included there has been, I guess, bumpy maybe as the word to describe it. We take a step forward and two steps backwards, it seems at times over there. So, I know personally, I get more optimistic about it because I'm starting to see some good stuff happen. And then all of a sudden, it slows down. So, I'm having a hard time reading it. Now again, I'm not a China expert. We don't do a ton of business there. But at least for what we do there, our part of the business and the myopia management part of the business, it's definitely fits and starts. So, I wish I could give you more specific detail on that. I mean, we don't have a lot built into our assumptions with respect to China. But I'm not sure how that's going to play out. I will say that the receptivity to MiSight has been really strong around the world, and it's been strong in China. I mean we've gotten really good feedback in China about the product. And I think the product is going to be successful. Now we did accelerate growth this quarter, which was great. We had a stocking order last year. So, we even hurdled that and still accelerated MiSight growth, and we continue to see some really nice success with MiSight as we start out the fourth quarter here. So, I'm definitely optimistic on my side and where it's going on a global basis, including within China, a little bit more questioning what's going to happen with Ortho-K. We did have some portfolio realignment where we had to true up some products. We had a lot of products there. So, we had to do some products up and so forth. We should have a better Q4. As a matter of fact, I think we'll have a pretty decent Q4. But again, it's still bumpy. I mean we held the range of $120 to $130 million, right? We did 25 or 30 and 30. So we're at 85. So that's $35 million to hit the bottom of that range. So, we're looking at sequentially at least $5 million more in our myopia management business. So that kind of gives you directionally where I'm thinking is you're going to see some bounce back and some improvement. But I'm a little hesitant to get too excited about it just because it seems like we keep moving forward and stepping back there.

Ron Feiner :

This is Ron on for Steve. I just wanted to ask what was the contribution of price to CVI this quarter. And what are you guys assuming for the rest of the year?

Ron Feiner :

Okay. Do you guys have any like early thoughts on tax rate, interest expense, and FX impact for fiscal '24 based on where things are at today?

Ron Feiner :

Okay, thanks, guys.

Albert White :

Great. Thank you, and thank you for everyone joining today. I'm pretty proud of where we're at right now. The business is doing really well. As everyone knows, we just posted really strong revenue numbers this quarter. And solid EPS numbers and our guidance is strong. So, I'm pretty optimistic about where we sit today and what the future holds. And I look forward to December and discussing in Q4 and definitely giving guidance for next year and talking about those details. So, thanks again, and look forward to hopefully seeing everybody during the quarter.

Operator:

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cooper Companies Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Kim Duncan, VP of Investor Relations and Risk Management, you may begin your conference.

Albert White :

Great. Thank you, Kim, and welcome, everyone, to Cooper Companies Second Quarter Fiscal 2023 Conference Call. This was another strong quarter with CooperVision and CooperSurgical both outperforming expectations. For CooperVision, we reported record quarterly revenues and our ninth consecutive quarter of double-digit organic revenue growth. For CooperSurgical, we reported record quarterly revenues and our fertility business reported its tenth consecutive quarter of double-digit organic revenue growth and earnings exceeded expectations. Our teams are delivering impressive consistent growth, and we're seeing nice momentum. So we remain very positive about the future. Moving to the numbers. Consolidated revenue reached a record quarterly high of $877 million. CooperVision posted revenues of $589 million, up 10% organically, and CooperSurgical posted revenues of $288 million, up 5% organically. CooperVision's growth continues to be led by our daily silicone hydrogel and myopia management portfolios, and CooperSurgical's growth was led by our fertility and OB/GYN medical device portfolios. Non-GAAP earnings per share were $3.08. For the quarter and reporting all percentages on an organic basis, CooperVision's revenue Growth was strong and diversified. By geography, the Americas grew 6%, EMEA grew 7% and Asia Pac grew 19%. Results were driven by new product launches, expanded product ranges, market-leading flexibility and growth in key accounts. Within categories, torics and multifocals remain especially healthy with both posting growth of 15%. Within modalities, daily silicone hydrogel lenses grew 17% with especially strong performance from MyDay. Daily silicone hydrogel lenses continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio with MyDay and clariti available on a wide range of spheres, torics and multifocals. And lastly, our silicone hydrogel monthly and 2-week lenses, Biofinity and Avaira Vitality reported growth of 5%. Turning to products. The U.S. rollout of our latest innovative offering, MyDay Energys is going exceptionally well. This premium lens caters to the demands of today's lifestyles by incorporating DigitalBoost technology to alleviate the impacts of digital eye strain. Interestingly, we've been receiving a lot of positive feedback that patients in their 20s and 30s really like this lens which is great news as the original Biofinity Energys has been more heavily used by patients in their 40s. Given almost all of us are spending considerably more time on screens, which reduces blinking and causes eyes to dry out and become uncomfortable, it's not surprising that wearers of all ages are appreciating the DigitalBoost in their MyDay Energys. Meanwhile, MyDay multifocal sales remain robust, and we're seeing great momentum in new geographies as the lens becomes more readily available in EMEA and Asia Pac. I'm happy to report these launches are proceeding better than expected with feedback from customers and practitioners remaining very positive. Our MyDay Toric parameter expansion rollout in North America is also continuing successfully and our recent launch in EMEA is ahead of schedule. Given the success of this product, we'll be increasing availability throughout EMEA, and we're looking forward to launching in Asia Pac in the near future. With almost 4,000 SKUs, MyDay Toric has set the industry standard with the widest daily toric range in the market by a wide margin. With this broad range, it's providing many 2-week and monthly toric wearers the option to enjoy the freedom of wearing a daily contact lens for the first time in their lives. To conclude at MyDay, this technologically superior product family is performing exceptionally well and momentum is strong. And lastly, within the daily segment, our clariti family of lenses continues to perform well by offering a high-quality option at a mass market price point. Outside of dailies, demand for Biofinity remains healthy, led by torics, multifocals and extended range offerings. We still have some capacity challenges. But with new production continuing to come online, we remain in good shape to meet ongoing demand. Moving to myopia management. We posted revenues of $30 million, up 36%, with MiSight up 49%. This slightly exceeded expectations and keeps us well on track to reach our goal of $120 million to $130 million this year. MiSight and Ortho-K sales were strong around the world, except China, where we didn't see a rebound until late in the quarter. Regarding MiSight specifically, we're seeing improving performance as we increase availability in key accounts, target practices with higher levels of pediatric patient flow and integrate the sales process into our regular sales channel. All this bodes well for MiSight, but also for our other products as there's a nice halo effect when MiSight practitioners accelerating their use of other CooperVision lenses. It's important to remember that MiSight is the first and only FDA-approved contact lens for myopia control and the product is backed by extensive clinical data. This is a critical differentiator as the proactive management of myopia become standard of care within the eye care community to help reduce the progression of myopia in children along with reducing the risk of long-term eye health problems associated with myopia, such as cataracts, retinal detachment and macular degeneration. To finish on CooperVision, the contact lens market grew 12% in calendar Q1, with CooperVision growing faster at 14%. We expect the markets to remain healthy, supported by the macro growth trend and more people needing vision correction. It's estimated that 50% of the global population will have myopia or near-sightedness by the year 2050 up from roughly 34% today. This is driven by the increasing use of digital screens, among other factors. And when you combine this with the ongoing shift to silicon hydrogel dailies, the increasing focus on higher value products such toric to multifocals and higher pricing, we expect many years of solid for the industry. Within this, we expect CooperVision to remain a leader with its robust product portfolio and growing product launches, fast-growing myopia management business and leading new fit data. Moving to CooperSurgical. This was another strong quarter. Our fertility business posted sales of $125 million, up 11% organically for its tenth consecutive quarter of double-digit organic growth. Success was seen throughout the product portfolio as the team executed exceptionally well with our diverse offerings within consumables, capital equipment, reproductive genetic testing and donor activity. Regionally, the Americas and EMEA continue to lead growth and the future is bright as we have solid momentum in both regions. Asia Pac is also preforming well and we are excited about the potential of that region. With the uncertainty of the Cook transaction, we do have work to do in that region to build out our footprint and we will do that. In this light, we're currently doing targeted investment activity, while also exploring ways we can advance efforts more quickly. Overall though, we're well positioned to maintain success given our strong team, diverse portfolio and global momentum. Regarding the broader fertility market, we compete in a segment that's now over 2 billion in annual sales and we expect strong growth for many years to come. This industry is unique in that it has multiple growth drivers, starting with women delaying childbirth. The average age of a woman's first birth in the U.S. and within several other developed countries now stands at 30 years old, and Asia is a key factor contributing to the need for fertility assistance. Other growth drivers include improving access to treatment, increasing patient awareness, increasing fertility benefits coverage and technology improvements for both male and female in fertility challenges. The World Health Organization just released updated data showing that the prevalence of infertility affects more people than we thought, with approximately 1 in 6 people having experienced infertility at some stage in their lives. So the macro trends clearly support this industry's growth. Moving to office and surgical products, which includes OB/GYN Medical Devices, stem cell storage and PARAGARD, we posted sales of $163 million, up 1% organically. Within this, OB/GYN Medical Devices reported excellent results growing 11%, driven by positive trends in patient activity and strength in several core products. In particular, our labor and delivery group continued performing really well. Our stem cell storage business grew 3%, in line with expectations. Our current educational campaign just starring Chrissy Teigen highlights the importance of preserving newborn stem cells and we're really happy with the positive feedback, and we're looking forward to that effort gaining more traction. Meanwhile, PARAGARD declined 15%, primarily due to buy-in activity from the price increase in Q1. Our IUD revenues remain a challenge, and we're continuing to not expect any unit growth in PARAGARD this year. So any growth we do see will be driven by price. To conclude on CooperSurgical, it's with great pride that we say that every minute somewhere around the world, a baby is born using CooperSurgical products. Our business makes a difference in people's lives, and we love that. We're also operating in several markets that have fantastic long-term sustainable growth characteristics, such as fertility. So we feel good about where we're positioned and what the future holds. Before turning the call over to Brian, let me summarize by saying this quarter really highlights the stability and consistency of our businesses. CooperVision posted its ninth consecutive quarter of double-digit growth and CooperSurgical's fertility business posted its tenth consecutive quarter of double-digit growth, and both businesses reported record quarterly revenue. Our momentum is strong. Our investments are yielding solid returns and our management team is fully engaged in executing at a high level. And lastly, I hope everyone has had a chance to read our recent ESG report, which highlights a lot of accomplishments. Advancing our ESG efforts is an important part of Cooper's culture, and I'm proud of the success we've had and excited about what we'll be accomplishing in the future. And with that, let me turn the call over to Brian.

Operator:

[Operator Instructions] Your first question comes from the line of Jeff Johnson with Baird.

Albert White :

Yes. And you're right, January was a really strong month. As we work through the quarter, it was okay. I mean, February is a good month, March. April was a weaker month for us. You can kind of see that if you look at the calendar quarter compared to the fiscal quarter for us because we grew in the calendar quarter 14% and then grew 10% in the fiscal quarter. So when you trade those months up. So you're right, April was a little weaker. May has been a good month. We did have a little -- some stuff moved kind of from April into May, but May has been a good month for us. So we've seen the contact lens marketplace at least for our business rebound in the month of May. So that's been a positive.

Albert White :

Sure. Yes, I think you're spot on. I think that 2% to 3% net pricing, I'm talking about net pricing is the way to look at it. The actual pricing that we've seen out there has been higher. The actual price increases has been higher. But if you look at the rebates and everything else, 2% to 3% is probably a good way to look at it right now. I think that's going to continue. I think that we're probably a little bit behind our competitors in that because we do have a lot of large contracts, especially some of the bigger store brand contracts that are multiyear contracts. So as those renew, we'll look at opportunities to adjust pricing on those. But I think that you're seeing that now. And frankly, I think you're going to see that for the next several years given supply constraints within the industry in general. If I look at our performance in the kind of back half of the year, the 6% to 10% you're talking about for CooperVision, I expect to be at the higher end of that range unless something happens to derail that. It'd have to be something unexpected, right? Some economic event or something out there. I mean we spent some time even this past week, it's been a little bit of a tough time for us coming up with some of the guidance and so forth with the debt ceiling and all the other activity that has been going on here recently. But no, we have good momentum. I feel optimistic that we'll continue to put up strong revenue numbers.

Lawrence Biegelsen :

Yes, I guess I'll ask the question on the guidance first here. The top line, you raised the top line and the bottom line by the amount of the beat in the quarter. I guess I would think FX was a little more favorable, particularly on EPS. Brian, maybe you could help us with that bridge how much currency changed from last quarter to this quarter for fiscal '23? And I guess the question is why not raise by a little more than the beat? And I had one follow-up.

Lawrence Biegelsen :

And why not raised by more than the beat?

Lawrence Biegelsen :

Yes.

Lawrence Biegelsen :

That's helpful. Just, Al, on my follow-up here. Asia Pac, plus 19%, really strong. And myopia management, if I heard correctly, the $30 million up 5% -- $5 million, I'm sorry, sequentially. That was one of the strongest sequential growth with absolute growth increases we've seen in a while. Just talk about the drivers in Asia Pac and myopia management and the sustainability.

Operator:

Your next question comes from the line of Joanne Wuensch with Citi.

Albert White :

No. It’s a great question. No, it won't be that way. I would expect PARAGARD to grow here in Q3 and Q4. And for us, it kind of put up low single-digit growth probably for this year. We did have the tough quarter here in Q2, obviously. But some of that was tied to kind of inventory in the channel, some of that kind of movement around the price increase. So I wouldn't necessarily read too much into that. I would kind of restate what I've said on some of the prior quarters. We're not envisioning unit growth there, but I still think we'll post an okay Q3, okay Q4 and post growth for the full year.

Albert White :

Yes. Well, obviously, fertility really strong. Just -- that team is doing an amazing job, just consistent strong performance and it’s really diversified around the world and by product so -- or product family. So fertility in good shape, we should continue to do well in fertility. Our med device business is doing really well, kind of our traditional OB/GYN Medical Devices. We've seen some strength there in the labor and delivery side and some of our surgical products doing really well. So yes, I mean, outside of PARAGARD, it was -- that was a pretty good quarter. I mean, Holly's got that business humming over at CooperSurgical. So expecting them to continue to put up good results.

Anthony Petrone :

And maybe just a couple of clarifying on PARAGARD. Can you remind us, Al, just the price increase that was put in earlier in the year and the extent of the volume declines, I guess, through the first two quarters of the year? So that would be my first question. And then maybe just in terms of overall share in contact lenses, at least according to our numbers, it looked like certainly, there was gains for Cooper in torics as well as multifocals but perhaps maybe a little bit of slippage in dailies, Again, just looking at the fiscal at plus 8%, and it looked like competitor data for dailies was a little bit higher than that. So just an overview on the share trends through May in lenses?

Operator:

Your next question comes from the line of Robbie Marcus with JPMorgan.

Brian Andrews :

Robbie, yes, sure. So operating cash flow continues to drive higher. We do have some things that are driving free cash flow a little lower. One of them, obviously, is CapEx. It's quite higher than in years past. Some other larger components that are driving it, that are having an impact downwards are frankly, interest. I mean our interest expense is going from doubling from $53 million to $110 million last year to this year. Taxes over the course of -- depending on what time horizon you're looking at, our tax rates keep going up. Our inventory levels from last year to this year also are going higher. So that's having an impact as well. But overall, I mean, our operating cash flow continues to be strong and expect to deliver still a strong free cash flow for this year. Just offsetting, obviously, the operating cash flow, it's just the higher CapEx which we've been talking about around $400 million this year.

Albert White :

From a new fit perspective, no, not really. In terms of regional, we're seeing pretty good activity there. There's still a lot of demand on optometrists for appointments and so forth and the new fit activity is pretty strong. And our CooperVision new fit activity is looking really good right now. We're winning certainly our fair share when it comes to new fit. So I'm pretty optimistic from that perspective.

Brett Fishbin :

This is Brett on today for Matt. Just wanted to ask a little bit about the trends in Europe given how robust several of the historical quarters looked a little bit of a deceleration here. Just wondering if there was anything driving that step down? .

Brett Fishbin :

All right. And then just turning to MiSight. It sounded like trends in Americas in retailing fee accounts was actually the driver of the step up this quarter. So is there -- do you see a potential maybe to drive some upside to that guidance range given China is now -- it seems like it's starting to recover and might actually be an incremental driver to the positivity you're seeing in the Americas?

Brett Fishbin :

All right. Awesome. And then last question for me. I think you touched on some of the continued supply chains in the industry being a positive driver for pricing growth. So I was wondering if there are any pockets of particular issues from other companies that might be benefiting Cooper given the investments you've been making in your own production?

Operator:

Your next question comes from the line of Jason Bednar with Piper Sandler.

Albert White :

Yes, there's probably something there, but I just don't put too much weight on it, honestly. I mean we've had some competitors pull back a little bit on some of their SKU ranges and we have those SKU ranges. As a matter of fact, our Biofinity toric family is the widest toric offering out there. And when you roll in things like the tort multifocal and so forth, I mean, it's just an amazing franchise right now. We've been building that franchise out for a number of years. We spent a lot of time and a lot of money on the manufacturing side and also on our distribution network to be able to manufacture and distribute all those products in a wide SKU range. So do I think that we're maybe getting a little bit of help because some competitors or a competitor has pulled back on some of their SKU ranges? Yes, probably. But this isn't coming because of like one quarter or an action as somebody took. This is coming because of a multiyear strategy that CooperVision is deployed to drive growth in our torics. I mean, Jerry Warner runs that business for us does a fantastic job. He's just laid out a great strategy there in terms of torics and multifocals, appreciating that the market is growing. That portion of the market is growing faster than the sphere market, and it's a really sticky and great market. So I mean, we've, again, invested a lot of time and money for a lot of years to be in the position we're in. And I give the team a lot more credit around that activity than I do saying that a small movement by a competitor is allowing us to take a lot of share.

Albert White :

Yes. On the channel inventory side, I'd say we probably ended our fiscal quarter a little light on channel inventory. I kind of referenced that a little bit with some of the Biofinity shipments. But I'd say we were probably a little lighter from a channel inventory perspective, nothing to go crazy about but since you're asking. On PARAGARD, yes, boy, we bought that. We put some money into it. I think we've gotten a great return on that asset. But having said that, we put some money into it. We put some TV advertising out there and a lot of different marketing campaigns and so forth to really try to energize the non-hormonal IUD market. We had some success on that, not a ton, you kind of get to where you're at today. There's some fundamental shifts in the market that are causing challenges for us. You're not seeing women go into their gynecologists as much as they were pre-COVID for kind of annual wellness exams and so forth. And as that's happened, combined with the fact that a lot of birth control options, especially birth control pills, the availability has increased or the ease, if you will, to get that first control has improved. It's hurt the IUD market, and it's hurt PARAGARD. So we're evaluating that like we always do right now. I mean that's a good product. It does okay in the marketplace, right? It's a decent fit in terms of our women's healthcare franchise. But we'll always evaluate that just like we do everything else in terms of kind of our long-term strategic planning.

Jonathan Block :

Great. Really good quarter, but just despite the top line beat, you have in a little bit hot on OpEx as a percent of sales relative to our estimate. And if I look at sort of fiscal '23, I think OpEx as a percent of sales, you might be up roughly 100 bps from last year. Brian, I think you mentioned some investments. Is that CVI, is that CSI? Where are those investments being made? And does that sort of remain front and center for the next couple of quarters until sort of you lap them, call it, exiting fiscal '23, we can think about recapturing the leverage into fiscal '24?

Jonathan Block :

Got it. Fair enough. And maybe just to shift gears and this one might be with you -- for you. But within APAC, I know you're overweighted to Japan, but I sort of want to take the opportunity to ask what you're seeing in China, the slope of the business of late. I just think there's been a lot of headline noise, news. And so just love to get your thoughts on what you're seeing on the ground in the sort of April and to May timeframe?

Operator:

Your next question comes from the line of Steven Lichtman with Oppenheimer.

Albert White :

Yes. So no real update on SightGlass when it comes to regulatory approval here, waiting to receive the final four-year data and compile that and then take next step. So nothing really to add from that perspective. As you know, we've got a great partnership with EssilorLuxottica on that product. And the product has been launched in many markets around the world, and it's selling and it's doing well. That's within the joint venture itself. So I continue to be really optimistic about that product long term. But that is within that joint venture, not in our P&L other than the investment activity, gains or losses below the line. When it comes to MiSight and how that looks, I mean, to me, glasses are going to do nothing but be a positive for the myopia control market. We want people getting into myopia control. They need to be wearing the product. So children need to be wearing those glasses. Compliance is really important as children get into myopia control, let's say they do that a lot at 5, 6, 7, 8, 9 10. Certainly, as they get to become teenagers, and certainly anyone who has compliance as an issue, you're going to want to be moving to contact lenses. So anything that we can do to drive the myopia control market forward and increase, it is a positive for us, positive for MiSight, positive for the industry.

Albert White :

Yes. It's really those products are sold through the hospital channel. So you need the hospitals to kind of open up and have more kind of, if you will, availability for children and so forth. You need to transition back to a more traditional, normal hospital environment within China. So I think that's what we're seeing right now, right? As COVID starts to get in the rear view mirror and you're getting patients going back into the hospital for more traditional needs and so forth, you're opening up some space for optometry and that's helping with the fittings.

Patrick Wood :

Amazing. Two left for me, please. I guess the first one is on the fertility side, maybe just zooming out, if we just hypothetically say Cook doesn't close, how committed are you to APAC as a region? You hinted by saying maybe some accelerated pathway to growing that. I'm just curious if you could put a little bit of meat on the bone to how you feel about the region, how critical that is for you and fertility going forward?

Patrick Wood :

Amazing. And then one more, which is I was really interested around MiSight and the positive halo effect of selling in the rest of your offering. I mean is that more a function of MiSight opening the door in the first place, where there isn't a relationship because it's such a unique offering and then being able to sell more in? Or is it more about incremental depth with accounts where you already have that relationship?

Operator:

Your next question comes from the line of David Saxon with Needham.

Albert White :

My gut tells me depending upon how you define long term, but certainly for the coming years here that volume is going to be flat. I think when you look at the availability of other offerings, the ease of availability and the additional offerings that are out there -- now those are on the hormonal side. But when you look at the birth control market out there, I think the volumes for IUDs and PARAGARD are going to be flat for a little while here.

Albert White :

Yes. The new fertility clinics is kind of a phenomena outside of the U.S., if you will. You're definitely seeing more of that activity in some of Asia Pac and some parts of Europe. You're seeing kind of consistent opening of new fertility clinics. The numbers aren't that huge in the end of the day, but they're big enough to continue to drive growth because we see some of that in our capital equipment sales. And obviously, that's a great part of our business. Anytime you can get capital equipment in. You've got the consumables following afterwards. So I'm not sure I've looked at it in terms of quantifying it because it hasn't been a spike or anything. It's been consistent here for probably the last four or five years, even through COVID, we were seeing new clinics continuing to open up. So I guess I would probably answer that by saying the fertility industry, I keep talking about like 5% to 10%, but obviously, it's grown more towards the upper end of that, certainly. Embedded within that is new fertility clinics opening. And I would envision the number of new clinics that we've been seeing open over the last five years or something to continue at a very similar pace probably for the next five years.

Anthony Petrone :

Just wanted a follow-up on Cook. Apologies if I missed it, just had another call there. But maybe just -- it sounds like it's certainly the probability is lower but there's still efforts to find a resolution. So maybe a little bit on just where the process sits and probability for close. And under a scenario where it does not close, there was an $875 million commitment and maybe just thoughts on where CooperSurgical M&A activity can go from here if this deal does not close?

Operator:

This concludes the question-and-answer session for today. I'll turn the call back to Al for closing remarks.

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2023 Cooper Companies Earnings Conference Call. I would now like to turn the call over to Kim Duncan, VP, Investor Relations and Risk Management. Please go ahead.

Albert White:

Thank you, Kim, and welcome, everyone, to Cooper Companies First Quarter Fiscal 2023 Conference Call. We started this year on a positive note with strong operational performances at both CooperVision and CooperSurgical. For CooperVision, we reported record quarterly revenues in our eighth consecutive quarter of double-digit organic revenue growth. For CooperSurgical, we posted strong results, including fertility reporting its ninth consecutive quarter of double-digit organic revenue growth. Earnings exceeded expectations, driven by the strength in revenues and investment activities yielding operational efficiencies faster than expected.

Jonathan Block:

Brian, maybe I'll just start with some clarifying questions. So the update from FX, I think previously it was a 2.5% drag to revs and net neutral for EPS. That was prior quarter. How has that changed? So is there a new FX number on revenues from the 2.5% drag? And then the impact to EPS, I want to make sure I heard you right. Is that improved by $0.10, $0.05 is embedded in the 1Q outperformance and then $0.05 is sort of the balance of fiscal 2Q to 4Q? Maybe if you can just clear that up a little bit.

Jonathan Block:

Yes. Okay. Perfect. I think I got you. And that certainly helps. Maybe, Al, just with the second question, I'll just ask a big picture. There's certainly been a lot of chatter about supply concerns within the contact lens industry. You guys certainly seem to be fairly okay. But maybe just talk about where you guys sit. I know you mentioned a little bit around some of your product lines, but broadly speaking, where you guys sit? And your confidence or comfort level that you're broadly going to be able to stay ahead of the demand curve, especially with hitting the gas and getting the MyDay Energys launch off the ground?

Larry Biegelsen:

Congrats on a really nice quarter here. guys. So I wanted to start, Al, on the contact lens market. And then I had one margin question for Brian. So Al, the guidance implies roughly 8% organic growth the rest of the year. Alcon called out some softness in the contact lens market on their call this week. What are you assuming for the contact lens market for 2023? Have you seen any changes in consumer behavior? And how does your private label business help insulate you?

Brian Andrews:

Yes. Larry, good question. So yes, since 2019, FX has had obviously a fairly decent headwind to us. So that's been about 1.5%. The other sort of 2%, I would kind of bucketize into 3 parts, kind of 1/3 each. One of them is just equity. That's share-based comp. We moved a few -- a couple of years ago from 5 years to 4 years vesting and that's created a headwind for us. So that's about 1/3 of the delta.

Jeffrey Johnson:

Al, maybe starting on the contact lens business. Just what do you see from a pricing standpoint this quarter? Do you still feel like this year could be a little bit better pricing environment for you specifically given some of those larger retail contracts? And should we expect MyDay Energys to come out at a price premium? I know Biofinity Energys kind of was back and forth, whether it's a premium or just a premium value that were got value out of it at the same price. So what are you planning on MyDay Energys?

Jeffrey Johnson:

Yes. That's helpful. And then I think one of the numbers that set out the most of me was at 9% constant currency in your SiHy FRP business. I know there's different data sources out there. One of your competitors talked about that FRP market being flat in the fourth quarter. I don't know if you agree with that, but to beat the market by 9 points. Does that speak to some of the private label benefits that Larry was asking about or how else to think about kind of that outperformance?

Operator:

Our next question comes from the line of Anthony Petrone from Mizuho Securities.

Albert White:

Sure. Yes. Myopia management was, I would say, was solid this quarter. The reason I wouldn't say it was strong, so to speak, really is China, that's where we ran in difficulty. So if you're outside of China, whether it's my side or whether it's our Ortho-K products, we had a really good quarter, and we've got good momentum. We're expanding those offerings. We're seeing MiSight in more big retailers and more big accounts as they're rolling it out and getting more active on their myopia control practices. So things going fairly well with respect to my side. Again, I would say the one clear negative within that space and the challenge that we had this quarter, frankly, was in China, that market just has not returned. So if it does start to return, we'll see some upside from that. We don't have a lot build into our expectations around that. So hopefully, we'll see that.

Albert White:

Yes, Brad, Unfortunately, there's not really much I can add other than just kind of repeating what we said, which is we're working through that process right now. There's a lot of regulatory implications there. So we're evaluating our different alternatives, kind of have everything on the table to see if we can figure something out. And as I mentioned, we'll have a resolution to that no later than August of this year.

Jason Bednar:

I'd like to congrats you on a real nice start to fiscal '23. I wanted to maybe start in the Americas, that 9% growth, and I think it's some of the best growth we've seen from the region in several years, really outside of the COVID period when comps are really easy. Can you talk about the dynamics there? Help us understand how much this Americas strength is a function of whether it's new products or if the price there is any different from the 2 to 3 points you're talking about there or just if volume is really just kicking it?

Albert White:

Yes. Let me hit that second one. So no, we have not really seen anything with respect to a trade down or softness in the contact lens marketplace at this point in time. As a matter of fact, we're continuing to hear from some of the big retailers and buying groups out there, including in the U.S. and around the world, challenges they're having with respect to staffing and whether that's staffing as office workers or even optometrists finding optometrists and getting optometrists to work enough hours.

Jason Bednar:

Yes. No, well said. I appreciate that. Maybe just a -- another maybe follow-up to clarifying point from some earlier questions. Al, I don't think you typically bifurcate the growth that you see in different channels. But can you talk about directionally how much stronger your private label business is relative to sales that are going into private practices? Is the delta between those groups, 1 to 2 points, 3 to 4 points. How should we think about that?

Operator:

Our next question comes from the line of Matthew Mishan from KeyBanc.

Brian Andrews:

Yes. I mean the -- we're going after several different costs containment initiatives. I mentioned in my prepared remarks, the consolidation of our Specialty eye care division into our core. Long term, that will be a gross margin benefit. But for the short term, that's going to be more OpEx benefit. We've gone after some other centralization activities, including consolidating our high-growth kind of a subregion within Eastern Europe and Middle East Africa into our European region. And so that will drive some better efficiencies. So I would say it's probably more of an OpEx play than anything else. Within gross margin, our guidance still is -- implied in our guidance is gross margins up year-over-year, a little bit more from currency than on a constant currency basis.

Albert White:

I think that, that does drive share gains for us. And I think in longer term, it will drive share gains for us. Yes, some of our competitors have pulled back on something like the extended range or I shouldn't even call it extended range in our world, they would kind of be more regular toric ranges that are out there. But some of the broader toric ranges. We haven't really seen much impact from that yet because a lot of that activity is fairly new in the marketplace. But I do think one of the differentiators for us and one of the reasons we take share and have taken share consistently for a long time is the breadth of our product portfolio. It's very difficult to manage those wide parameter ranges.

Operator:

Our next question comes from the line of Robbie Marcus from JPMorgan.

Albert White:

I don't think, frankly, very much. Some of the issues that competitors have had around supply chain are relatively recent. We've had some of our own challenges around supply chain. I don't want to act like we haven't. So frankly, I don't think there's very much that it's come from supply chain challenges. They haven't been significant or long enough to really start moving market share at this point in time. If they hold and they continue to be a challenge, I do think that could provide positive upside to us. But I wouldn't put much on it for the results that we're reporting right now.

Albert White:

Yes. I mean, as you can imagine, highly dependent upon what we have to sell off and what price we would get for what we have to sell off. At this point in time, I just can't answer that question. If I could, I would. But yes, at this point, I just can't give you color on that one.

Albert White:

Well, you know what, I'll refrain from answering that one. I mean, I'm a believer in accretive transactions. They need to be strategic, and they need to be accretive, and they need to make sense for your company short and long term. I guess that's how I would answer it. There's enough moving parts on that one behind the scenes that I just don't want to get into details on that.

David Saxon:

Congrats on the quarter. Maybe starting on surgical. You called out some pull-forward buying for PARAGARD in front of some pricing. Just wanted to see if you could quantify that impact and talk about kind of what the underlying demand looks like with PARAGARD?

Albert White:

Yes. We won't have much of an impact on gross margins this year. I think Brian was spot on. We'll see a little bit of improvement in gross margins. I think we've got the potential for more expansion in gross margins in the coming years. But if I -- if you look at capacity expansion right now, we've been busy. We were busy last year, certainly busy in Q4. I talked about that last quarter, and we start the year, but doing some expansion in Puerto Rico and Costa Rica in our U.S. facilities, doing work in the U.K. So there's a lot of facilities around the world where we're doing expansion right now. And a lot of that's tied to capacity expansion.

David Saxon:

Got it. And if I could just follow up on that last comment about mid- to upper single digit growth. I guess you had a peer talk about kind of flattish to down unit growth. A lot of it is driven by pricing and mix. So I just wanted to ask if you're thinking about mid- to high single digit growth, how much of that is units versus price and mix?

Unknown Analyst:

Congrats on a solid quarter, guys. I was curious, the CooperVision upside really came at least relative to our numbers outside of the core SiHy or myopia management segments that get all the attention. Is there any unusual in that non-SiHy part of the portfolio? I know there was a lot of noise last year with lens solutions coming out, and we thought you had at least one more tough comp before you lap that?

Albert White:

SightGlass, we're continuing to work on that. We're moving through the fourth year of that clinical data, which we'll get later this year. We'll take a look at it and hopefully get that back in the FDA's hands and knock on we'll get an approval of that. We still have work to do there. In the meantime, the products launched in several markets around the world. We're selling that product. As you know, we have a great joint venture with EssilorLuxottica, a great team there that we're really, really happy about and excited about. And I think a bright future with that product, that's, I guess, what I would say about it right now.

Steven Lichtman:

Al was wondering if you could talk on MiSight relative specifically to the U.S. Any color you can provide in terms of how that ramp is going? What you're hearing from customers? Any feedback on that would be helpful.

Albert White:

Sure. Yes. I mean we're continuing no question to have investment activity whether it's the infrastructure of the business or whether it's commercially based around product launches. I mean Obviously, in a product like MyDay Energys, we're putting dollars behind the launch on that product, and we'll continue to do that. When you look at some of the other products we have, MyDay multifocal as we roll it out in different spots around the world, we have promotional campaigns, marketing campaigns supporting those products. So we'll continue to do that. I would say we did that in Q1, and we're going to continue to do that.

Navann Ty Dietschi:

My first question is what is your outlook on OB-GYN visits in 2023? And do you foresee a sustainable recovery of PARAGARD longer term and volume market share opportunities in addition to price increases?

Albert White:

Well, we could. Right now, I would say that from a capital perspective, our focus is on paying down debt. I mean, obviously, the Cook transaction is out there, and we're going to evaluate that Cook transaction and come to a resolution on it. But outside of that, I would say the majority of our focus from a capital perspective right now is on paying down debt.

Albert White:

Great. Well, thank you. Thank you, everyone, for your time and for joining the call today. As I mentioned earlier, this is exactly how we wanted to start this fiscal year off on a good basis. So good revenue growth at vision, good revenue growth at Surgical efficiencies within the company, driving earnings upside. And I think we're well positioned to have a good Q2 to Q4. So I look forward to seeing you guys during the quarter and certainly to our next quarterly conference call. Thank you.

Operator:

Good afternoon, and welcome to Cooper Companies Fourth Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead, Ms. Duncan.

Al White:

Thank you, Kim, and welcome, everyone, to Cooper Companies' fourth quarter and fiscal 2022 year-end conference call. We finished this year with CooperVision reporting its seventh consecutive quarter of double-digit organic revenue growth and CooperSurgical posting an eighth consecutive quarter of double-digit organic revenue growth within its fertility business. Demand for our products and services was very strong in Q4, and we're seeing that continue into fiscal 2023. I'm extremely proud of the dedication of our Cooper employees and the hard work it took to post another year of record revenues in fiscal 2022, and I look forward to another record-setting year in fiscal 2023. Moving to the numbers. Consolidated quarterly revenues reached an all-time high of $848 million, and we closed the fiscal year with record revenues of $3.31 billion. CooperVision posted quarterly revenues of $562 million, up 11% organically and reached a new record high of $2.24 billion in fiscal year revenues. CooperSurgical posted record quarterly revenues of $286 million, up 15% organically and reached new record fiscal year revenues of $1.07 billion. For the quarter, CooperVision's growth was led by our daily silicone hydrogel portfolio and myopia management products, while CooperSurgical's growth was broad-based with strength in PARAGARD fertility and our broader medical device portfolio. Non-GAAP earnings per share were $2.75. This was lower than we were forecasting primarily due to commercial spending tied to product launches and elevated distribution costs, and Brian will cover this later in the call. For CooperVision, in Q4, and reporting all percentages on an organic basis, revenue growth was strong and diversified in all geographic regions and across all product categories, spheres, torics and multifocals. The Americas grew 5%, EMEA was up 13%, and Asia Pac grew 16%. This performance was driven by new product launches, expanded product ranges, market-leading flexibility through our customized offerings and growth in key accounts. Regarding product details, daily silicone hydrogel lenses grew 20%, with especially strong growth from MyDay and from clariti in the Asia Pac region. Daily silicones continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio in the market with MyDay and clariti available on a broad range of spheres, torics and multifocals. Our silicone hydrogel FRP lenses, Biofinity and Avaira, reported another solid quarter of 6% growth. Regarding product launches, we remain extremely active. The MyDay multifocal launch is going incredibly well, and the feedback from customers and practitioners remains outstanding. In the meantime, the MyDay toric parameter expansion launch has been overwhelmingly positive in the U.S. and Canada. With over 4,000 SKUs, we now match our standard Biofinity toric range and have the widest daily toric range in the market by a wide margin. Not only does this expand the daily toric category for everyone, but for many FRP toric wears, this is their first opportunity to enjoy the freedom of a daily contact lens. We'll be rolling out these expanded parameters in additional markets as we move through fiscal 2023 and look forward to continued success. And lastly on MyDay, we're excited to be bringing MyDay Energys to the market. This lens uses the same innovative technology as Biofinity Energys to alleviate digital eye strain, and eye care practitioners are excited to be getting this technology in a premium daily offering. We started seeding the U.S. market and a full national rollout is scheduled for early spring. Combining all this MyDay activity truly exemplifies CooperVision's leadership in the daily silicone hydrogel space and our focus on offering practitioners a wide variety of market-leading technologically superior products. Outside of MyDay, demand for Biofinity remains especially strong to the point where we're somewhat capacity constrained. We've increased price and production, especially in the extremely high demand made-to-order extended range torics and toric multifocals, and we'll continue to focus on increasing capacity on a broader scale moving forward. Moving to myopia management. We posted revenues of $26 million, up 29%, including MiSight up 88%. For the full fiscal year, we reported myopia management revenues of $93 million, which was impressive given the negative impact of currency and ongoing COVID restrictions in China. For MiSight, we're rolling out an expanded parameter range and launching in new countries, and I'm happy to report that MiSight is now available in 41 countries. Within this, we're seeing increased fitting activity from both independent optometrists and key accounts, and we're continuing to see a positive halo effect with our MiSight customers accelerating their use of other CooperVision lenses. All this is a good sign and points to a strong fiscal 2023, where we expect myopia management revenue of $120 million to $130 million, up roughly 35% at the midpoint in constant currency. And as a reminder, MiSight contact lenses are the first and only FDA-approved soft contact lens proven to slow the progression of myopia in children aged eight to 12 at the initiation of treatment. The product is backed by extensive clinical data and remains a shining example of CooperVision's leadership in the contact lens industry. Moving to SightGlass. We've been making progress with these myopia control glasses as part of our great joint venture with EssilorLuxottica. This includes selling in China and pilot programs in Canada, the Netherlands, the U.K., and Israel. In the U.S., the JV submitted an FDA application to be the first spectacle lens product to receive FDA approval for myopia control, and we hope to receive a positive response by calendar year-end. And to conclude on the importance of myopia management and why it needs to become standard of care, the risk of visual impairment and eye complications such as glaucoma, grows exponentially with vision loss. So, preventing higher levels of myopia is critically important for the long-term health of our children's eyes. To finish on CooperVision, the contact lens market is performing exceptionally well with growth of roughly 9% in calendar Q3. There are still COVID-related challenges, especially with respect to staffing shortages in optometry offices negatively impacting patient flow, but progress is being made. Meanwhile, the long-term growth drivers of the industry remain intact. This starts with a macro growth trend and more people needing vision correction with an estimated 50% of the global population expected to have myopia or nearsightedness by 2050, up from roughly 34% of the population today. This is driven by a variety of factors, including greater levels of screen time and less time outdoors, especially among children. Other industry drivers include the market's continuing shift to silicone hydrogel dailies, the increasing focus on higher-value products, such as torics and multifocals, and higher pricing, which is running ahead of historical trends. We expect global growth to remain healthy and believe we'll remain a leader with our robust product portfolio, ongoing product launches, fast-growing myopia management business and leading New Fit Data. Moving to CooperSurgical. We posted a great quarter with growth throughout our portfolio. Fertility reported sales of $109 million, up 15% organically, its eighth consecutive quarter of double-digit organic growth. Success we've seen throughout the product portfolio and around the world, and given our momentum as we enter fiscal 2023, we're continuing to invest in our team and in our fantastic product portfolio, which includes leading consumables, capital equipment and genomics. Demand remains very strong, especially among our key accounts, so we need to keep building infrastructure, investing in our people and delivering the products and services required in this high-growth market. Regarding the overall fertility market, the future looks bright. There are several industry growth drivers, but one of the key factors being women delaying childbirth. The average age of a women's first birth in the U.S. and several other developed countries now stands at a record high of 30-years-old and age is one of the key factors in needing fertility assistance. Additionally, factors such as improving access to treatments, increasing patient awareness, improved product offerings, such as cryopreservation, increasing fertility benefits coverage, and technology improvements for both male and female in fertility are driving the industry forward. In total, it's estimated that roughly 15% of reproductive aged couples have fertility challenges and that over 750,000 babies are born annually through fertility assisted measures, and these numbers are growing. Regarding CooperSurgical's market positioning, we compete in a portion of the market that's roughly $2 billion in annual sales, and we forecast growth of 5% to 10% for many years to come. Within this, we're well positioned to continue delivering strong results with the broadest portfolio in the industry, a market-leading commercial footprint and strengthening key accounts. Moving to office and surgical products, which includes OB/GYN medical devices, PARAGARD and stem cell storage. We posted sales of $178 million, up 58%, and up 15% organically. Within this, PARAGARD grew 19%, and office and surgical medical devices were up 13%. PARAGARD posted strong results rebounding from several tough quarters, and OB/GYN medical devices benefited from strong demand, especially for surgical products, combined with clearing and backlog. Lastly, our stem cell storage business grew 2%, in line with expectations against the difficult comp. To conclude on CooperSurgical, we made a ton of progress this year

Operator:

Thank you. [Operator Instructions] Our first question comes from Jon Block from Stifel. Please go ahead. Your line is open.

Al White:

Yes. So, Jon, the response so far from eye care practitioners has been pretty positive. A lot of them know this technology, because they've used it with Biofinity, so they're comfortable with it. They've been requesting it in a more premium daily, which is obviously MyDay that were given to them now. So, I'm optimistic it's going to do well. We're just getting it in the hands of key opinion leaders starting really here in November, and we'll continue to expand that out in the coming months. But positive response on that. It will be priced at a premium to the sphere, to the MyDay sphere. I won't go into pricing details yet as we don't have it out in the market, but it will be a premium priced product.

Brian Andrews:

Hi, Jon, yes, good questions. I'll take the second part of your question first. Yes, there's a good part of that, that was transient that really was particular to the quarter. And then, there's an element of the inefficiencies and just elevated OpEx that will persist into 2023. Now, I touched on some of the things that drove our guidance, including the strong revenue growth, gross margins improving, driven by price increases, and operating margins up slightly. We are assuming a modest recession, including those inflationary pressures and those continued inefficiencies. And then there, of course, the rate increases and some conservatism perhaps on FX. But the nice thing is, obviously, currency was brutal last year. It's going to be bad in Q1. It will improve quite a bit after that. But we got hit hard with increased costs in 2022. Those will settle down a little bit. But we are factoring some of that in. We are seeing some normalization at freight and wages. We'll annualize some of those, and we're seeing some improvements already, but we did not factor some of those improvements into our guidance. So, in short, yes, the elevated OpEx is taking our EPS guidance, maybe a touch lower than where we were three months ago. But it's still not materially different from where we had set guidance, where -- what we had said about a quarter ago about driving to low single-digit earnings growth. We just have higher interest and just some of the elevated OpEx that we've factored in perhaps for a little bit of conservatism as we start the year.

Operator:

Our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead. Your line is open.

Brian Andrews:

Yes. So, on margins, Q4 to next year, I touched on -- I gave a little bit of guidance in my prepared remarks just around Q1 being a little bit lower than Q4. Some of that -- gross margin is going to be somewhat similar, but OpEx is still going to be elevated. We saw some of the issues that we dealt with in Q4 kind of bleed into Q1. As you work through the year, like I said, currency improves, gross margin will improve from price, and then operating margins, while they're going to be up slightly year-over-year, they are being held down a little bit from the elevated OpEx. The cadence and the gating around revenues is going to be pretty similar to the way it is typically. And -- so that's basically the gating. Did you -- did I answer your question, Leah?

Brian Andrews:

So, revenues will be a little bit lower, and gross margins probably a little bit similar, but you've got higher OpEx, and certainly higher interest expense, which will drive your EPS a little bit lower versus.

Al White:

So, there's nothing in there for SightGlass revenue. As you know, Leah, that's a joint venture that we have. So, we don't recognize revenue from that other than a little bit of the product that we distribute, but it's pretty minimal. We've assumed continued cost there. We've had expenses associated with SightGlass that have been rolling through our P&L every quarter. We've assumed that will continue. The only thing that I would probably highlight that's not factored in there is what happens with FDA approval. If we do get FDA approval, I'm sure there will be incremental launch costs associated with that activity. And we'll obviously pull that out and highlight that specifically, but that's a little bit of an unknown. So that's the only thing that wouldn't be in there.

Operator:

Our next question comes from Jeff Johnson from Baird. Please go ahead. Your line is open.

Al White:

Yes. I think that price this year ends up being somewhere around 2% as a positive. And that's probably true for us, and an industry comment, it's going to be somewhere around in that range. So, yes, when you look at the 7% to 9%, depending upon how you want to look at that compared to prior years and so on and so forth, you've got 1%, 1.5% coming from myopia management and a couple of points coming from price still within that.

Al White:

Correct.

Al White:

Yes. I think that it's okay, but I wouldn't go really any further than okay. When I look at fiscal Q4 certainly and how we started this year, I mean, we've got some good numbers there because of rebound activity. But if I look at actual patient traffic with respect to OB/GYN visits, specifically associated with IUD, we haven't really seen much of an improvement there. So, I think there are signs of potential improvement, but I wouldn't read too much into that right now. I think we'll still have a challenging year, if you will, with PARAGARD in terms of getting a lot of unit growth out of it.

Joanne Wuensch:

Thank you. A couple of questions. You're talking about a 9% contact lens market growth that absorb, say, 2% price, maybe that makes a 7% market grower. That's higher than the normal average. What's driving that growth?

Joanne Wuensch:

And then as a follow-up, help me understand what gross margins might look like next year, given everything.

Joanne Wuensch:

Okay. Thank you.

Jason Bednar:

Hey, good afternoon. Thanks for taking the questions, and sorry if any background noise here. Al and Brian, within that 7% to 9% organic revenue guide for CVI, can you help us understand how you're thinking about the geographic build-up within that guide? I asked -- the Americas performance was a little soft this quarter. Just curious how you're thinking about the growth contribution if you look around the globe for fiscal '23.

Jason Bednar:

Okay. That's helpful. And then, Al, as you're thinking about pricing for next year, I mean, your stability for fiscal '23, 2% next year versus 2% you just put up. But I thought there was a supposed to be maybe some lagged effect on some of those key accounts you have, the contract resetting. So, I guess is the 2% tailwind for pricing next year, is that just conservatism, or are those contracts not resetting like we thought they were? Just curious how you're thinking about that dynamic. Thank you.

Jason Bednar:

All right. Thank you.

Unidentified Analyst:

Hi. This is actually Lily on for Robbie. Thanks for taking the question. We've heard about supply and manufacturing issues from both you and some of your competitors. So, do you think this is affecting share? And have you seen any benefits or loss from these dynamics?

Unidentified Analyst:

Got it. And then just a follow-up. The [silicone] (ph) daily number came in pretty well above what we were thinking. So, maybe just on the competitive environment there, is there any color you can share on what you've been seeing in terms of share capture versus trade-ups from your own base? Thanks very much.

Operator:

Our next question comes from Zach Weiner from Jefferies. Please go ahead. Your line is open.

Al White:

Sure. Yes, MiSight was a positive this quarter, better than my expectations. The myopia management number, if you will, in total we get the 93 million, but Ortho-K was weaker than expected. We ran into some issues in September and October with our Ortho-K product line in China. And we all know what's been happening in China. And our Ortho-K sales came in definitely lower than expected. The flip was true on MiSight, where we posted some good numbers. I was happy with that. The fitting activity is pretty strong there. The interest in activity we're seeing from some key accounts and retailers and so forth is positive. Retainage [of wears] (ph) was positive again definitely this past quarter. So, some good positive trends with respect to MiSight. It's almost a little under the surface, if you will, but I was really happy with our Q4 performance there.

David Saxon:

Hi, good afternoon, and thanks for taking the questions. Maybe I'll start with the guidance. The organic guidance at least calls for a slowdown, CVI 7% to 9% versus, I think, it was 12% in fiscal '22, and CSI, 4% to 6% versus 8% in '22, and below the 5% to 10% market growth you call out. So, just wanted to ask if this just kind of the comp dynamic, you are facing tough comps, or are there any change in the market place that's causing the slowdown?

David Saxon:

Okay. Got it. And then maybe a two-parter on the M&A front. I guess, any update on the map around the Cook deal? Help us think through kind of the impact from selling assets needed to get the deal done and higher interest rates. And then, on the SynergEyes deal, maybe give us a brief overview on that, and kind of how it fits into your speciality lens portfolio? Thanks so much.

David Saxon:

Great. Thank you.

Steve Lichtman:

Thank you. Hi, guys. Brian, you mentioned during the prepared remarks, assuming a mild recession in your guidance. Can you guys talk more about what that means in terms of assumed headwinds? In what ways across CVI and CSI are you assuming modest recession could potentially impact growth? Is it too mixed [indiscernible] in lens, fittings, anything you can provide in terms of qualitatively would be helpful.

Steve Lichtman:

Got it. Okay. Great. And then just a quick follow-up. I appreciate the comments on CapEx for this coming year. Can you talk about overall what you're thinking regarding free cash flow this year, either quantitatively or just directionally versus FY '22?

Steve Lichtman:

Got it. Thanks, Brian.

Matthew Mishan:

Great, and thanks for taking the questions. Just the first one is on Europe. I understand the Asia growth. I think that seems like it's been a great market for you for a good amount of time. Just help me understand how you guys are doing like double-digit growth right now in Europe? And maybe is there a difference in how consumers purchase contact lenses in Europe than they do in the U.S.? Is it more of a subscription service versus like a sale at the optometrist?

Matthew Mishan:

Okay. And then on the investments you're making in distribution and capacity, I remember a couple of years ago you were kind of really making major investments to drive that. Just help me understand like -- put this investment that you're making -- these investments that you're making in the context of the investments that you made a couple of years ago?

Matthew Mishan:

All right. Excellent. Thanks, Al. Thanks, Brian.

Al White:

Great. Thank you. I'll give you one closing remark, and that's that if FX rates stay where they're at, I am certainly happy that we're going to spend less time talking about currency. I mean last year, currency was negative to us around $2.32, I think, so a pretty significant hit to EPS and a big hit to the top-line. As Brian mentioned, FX is still a decent negative to us in Q1, but then it actually starts turning the other direction to the point where it actually starts moving positive. If that holds where it's at right now, that's going to put us in a good position to get back to the back half of this year, where all else being equal and holding steady, we could be back up to double-digit EPS growth. So, I'm excited to get currency behind us. I'm excited about what the team is doing right now, and the momentum that we have, and the investment activity that we're putting dollars behind. I think our business is in a really, really good place right now. So, with that, I'll thank everyone for the call, and say happy holidays, and look forward to speaking with everybody in the future. Thank you.

Operator:

Good day. And thank you for standing by. Welcome to Cooper Companies’ Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker, Kim Duncan, Vice President, Investor Relations and Risk Management. You may begin.

Al White:

Thank you, Kim. And welcome everyone to Cooper Companies’ third quarter conference call. Let me start by highlighting that this was the sixth consecutive quarter of double digit organic revenue growth for CooperVision and the seventh consecutive quarter of double digit organic revenue for CooperSurgical’s fertility business. This impressive performance showcases the strength of our teams and the strong demand for our products and services. This momentum continued in August and we’re increasing the organic revenue guidance for both CooperVision and CooperSurgical incorporating our strong Q3 and the strength we’re continuing to see. Overall, the challenging macro environment, including headwinds from currency inflation and supply chain challenges has negatively impacted profitability, but has not reduced our ability to take share and drive sustainable, top-line growth. Moving to the third quarter results, consolidated revenues reached an all-time high of $843 million with CooperVision posting record revenues of $566 million up 11% organically and CooperSurgical posting record revenues of $277 million up 35% as reported, up 3% organically. Growth was led by our daily silicone hydrogel portfolio in myopia management products for CooperVision and fertility for CooperSurgical. Non-GAAP earnings per share of $3.19. And we posted record quarterly free cash flow of $217 million. For CooperVision and reporting all percentages on an organic basis, revenue growth was strong and diversified in all product categories, spheres, torics and multifocals, and within all three geographic regions. The Americas was up 7%, EMEA grew 15% and Asia-Pac grew 11%. This performance was driven by a number of factors, including new product launches, expanded product ranges, market-leading flexibility through our customized offerings, growth in key accounts and strength of branded products. Regarding product details daily silicone hydrogel lenses grew 24% led by great results from both MyDay and clariti. Daily silicones continue to be the main driver of growth for the contact lens industry and we offer the broadest portfolio in the market with MyDay and clariti available in a broad range of spheres, torics, and multifocals. Within this we’re continuing to see especially strong growth for MyDay, including from the very successful rollout of the MyDay multifocal, which is taking share on markets around the world. The feedback from patients remains fantastic. And optometrists continue reporting that our breakthrough Binocular Progressive Fitting System is allowing them to fit the lens quickly and accurately. This success is driving a positive halo effect on MyDay, spheres and torques, and we remain very optimistic about the future of this brand. clariti also posted a solid quarter with particular strength noted in Asia-Pac. And our silicone hydrogel FRP lenses, Biofinity and Avaira reported another solid quarter of 8% growth. Regarding product launches, we remain very active. I’m excited to announce we’ll be seating the market with MyDay Energys over the next several months with a full launch scheduled for early calendar 2023. We’ve had a lot of requests for the Energys technology in a daily lens and given the success we’ve had with Biofinity Energys, we’re really excited about this opportunity. MyDay Energys will use the same Digital Zone Optics technology as Biofinity Energys, providing where this greater comfort when using digital devices along with enhanced and day [ph] comfort. This daily lens is a perfect product for today’s digital world and another great example of CooperVision leading with innovation and manufacturing knowhow. And building on this, we’ll also be launching an expanded MyDay toric parameter range in early fiscal 2023. MyDay already offers the most prescription options in the daily toric market and this expansion will essentially match the leading offerings in the FRP toric segment, which will be a first for the contact lens industry. All this activity supports a fantastic MyDay brand and exemplifies CooperVision’s focus on offering practitioners a wide variety of market-leading technologically superior products. Meanwhile, we’re expanding availability of clariti around the world, which will further strengthen relationships with customers using store brands. And I’m also happy to report that we’ve recently increased production of Biofinity including made to order extended range torics and Biofinity toric multifocals. Demand continues to exceed supply on these products, which is cause supply disruptions, so adding capacity is great news. Overall, these products and technologies improve how eye care professionals deliver clinical care and it’s allowing us to lead in defining standard of care, a core component of our ongoing share gains. Moving to myopia management, another exciting area where we’re a market leader. We posted revenues to $24 million, up 42%, including MySight up 109%. Our growth trajectory remains strong with the main challenge being in China, where all contact lens sales, including MiSight and ortho-k products have experienced difficulties due to ongoing COVID restrictions. Outside of China, MiSight is performing really well backed by its extensive seven-year clinical data and FDA approval and we’re seeing strength with key accounts and private practitioners around the world. We’re also seeing a positive halo effect with customers selling MiSight accelerating their use of other CooperVision lenses. For SightGlass myopia management glasses, our JV relationship with EssilorLuxottica is going well and the team continues to make progress. In the U.S., we’re finalizing the submission of the three-year clinical data and expect submitted to the FDA in September. As a reminder, the only FDA approved myopia management product on the market in the U.S. is MiSight so obtaining approval for glasses has the potential to really propel the myopia management field forward. To finish on CooperVision, the contact lens market continues to perform exceptionally well with estimated growth of 8% in calendar Q2. Although COVID-related challenges remain including here in the U.S. where, back-to-school eye exam demand is exceeding exam capacity. The many long-term growth drivers of the industry remain intact. This starts with a large macro growth trend that roughly one-third of the world is myopic today and that is expected to increase to 50% by 2050. This has driven by heightened screen time among other factors. Additionally, the shift to silicone hydrogel dailies remain strong. The penetration of higher value products such as torics and multifocals is growing, the number of wearers is growing, and we’re seeing price increases. We expect global growth to remain healthy and believe will remain a leader with our robust product portfolio, ongoing product launches, fast growing myopia management business and leading new fit data. And speaking of data, I’m proud to say calendar Q2 U.S. stats showed CooperVision was the number one company for new wearers and the only manufacturer to grow share in all three daily categories, spheres, torics and multifocals. Moving to CooperSurgical. We posted a solid quarter led by fertility, which reported sales of $112 million up 13% organically. As I mentioned earlier, this was the seventh consecutive quarter of double-digit organic growth. So a big congratulations to that team. Success was seen throughout the product portfolio and around the world with particular strength noted in consumables with products like [indiscernible], pipettes, needles and catheters doing well. Consumables are core part of our fertility business and an excellent indicator of future growth. So we remain in great shape to continue delivering strong results. Regarding the broader fertility market, the fundamentals behind the industry’s growth remain very healthy. There are many drivers, but women delaying childbirth is a primary factor as fertility challenges start increasing around the age of 30 with a more pronounced negative impact starting at 35. It’s now estimated that roughly 15% of reproductive age couples worldwide have fertility challenges, and over 750,000 babies are born annually through fertility assisted measures, and these numbers are growing. Regarding CooperSurgical’s positioning we estimate the portion of the market we compete in is roughly $2 billion in annual sales, and that it’ll grow in the 5% to 10% range for many years to come. In addition to increasing maternal age, other drivers include improving access to treatment, increasing patient awareness, growth in the number of fertility clinics, improved product offerings such as donor activity and cryopreservation services and technology improvements for both male and female infertility challenges. Given the momentum of the industry and the diversity of factors driving growth, fertility is certainly an exciting market to be in. Moving to office and surgical products which includes OB/GYN medical device, PARAGARD and stem cell storage. We posted sales of 165 million, up 36% but down 3% organically. OB/GYN medical device sales were negatively impacted by heightened back orders due to supply chain challenges. We’ve seen good demand and positive signs in our supply chain to start this quarter, so we expect healthy growth in fiscal Q4. PARAGARD was down 7% as expected due to a difficult comp to last year’s price increase and related buy-in activity. But we expect nice growth in Q4 with an easier comp, improving patient flow and an increasing patient focus on the most efficacious forms of birth control including 99% effective IUDs such as PARAGARD. Lastly, our stem cell storage business that we enter would generate acquisition this past December grew 1%. This was in-line with expectations against a difficult comp from prior to our purchase of the business. To wrap up on CooperSurgical, fertility remains strong. The other parts of the business are making progress and the integration activity is going well. We expect a strong finish to this year and believe we’re in an excellent position to deliver long-term mid-single-digit growth. To conclude we operate in recession, resistant industries with strong macro grow trends, but we’re not immune to supply chain challenges and currency is having a material impact on our as reported results. Having said that our core business fundamentals are excellent. We’re taking market share, we’re leveraging where we can, we’re taking price. We’ll remain extremely focused on the challenges facing us, and we’ll be proactive and we’ll proactively manage operations while maintaining a focus on delivering long-term shareholder value. And with that, I’ll turn the call over to Brian to discuss financial results and guidance.

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Jason Bednar with Piper Sandler. Your line is open.

Al White:

Yes, on that second one. The back-to-school demand is strong. We’ve definitely see an increase on that and there’s some commentary of other people. I think national vision talked about it on their call. It comes down to staffing shortages and really strong demand. So that’s putting pressure on the optometry community, whether it’s retailers or independent optometrists to meet all that demand. So that’s a challenge right now. Now it’s, “a good challenge”, right. But it’s still a challenge that the industry needs to work through over the coming months. With respect to August, I won’t give numbers on August, but yes, CooperVision and CooperSurgical, including fertility are both having good August.

Al White:

Yes. So we have seen an uptake if you will, in MiSight in the month of August certainly, and including in China where we’ve seen things loosen a little bit there. So positive news on that the uptake of that product and success of that product is moving faster than we’ve seen in most other markets around the world. So certainly positive signs that are in fingers crossed we’re now on a better path. Right. Because is that’s really the thing that, that impacted our numbers. It’s really been China that’s, I don’t know, 99% or a 100% of what’s impacted those numbers.

Al White:

Yes.

Larry Biegelsen:

Good afternoon. Thanks for taking the question. Hey Brian, thanks so much for the color on fiscal 2023. Maybe, if I could ask about maybe some of the other assumptions embedded in the low single digit year-every-year non-GAAP EPS growth, underlying organic sales growth. Do you think, should we think about that in line with historical 6% to 8% growth, organic growth for Cooper, or do you think you, can do better and currency Brian, I think I heard you talk about interest expense, but currency right now, we think it’s about 3% headwind to sales $0.80 to EPS, any color on those too. And I had one follow up.

Larry Biegelsen:

Understood and Al on SightGlass and first of all, I didn’t hear you reiterate the $90 million to $100 million for myopia management this year, but it looks achievable based on the $24 million you did in Q3 here. Just want to confirm that. And for SightGlass approval in the U.S., what’s your confidence here by calendar year end 2022. Did you hit, FDA’s goals for Axial Length and myopia progression? Thank you.

Larry Biegelsen:

Thank you.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Chris Cooley. [Indiscernible] your line is open.

Al White:

Yep. Hey Chris.

Al White:

Sure. Good questions, Chris. And you can see, the guidance we gave for CooperSurgical that were kind of in that 10% to 15% organic growth range for CooperSurgical in fiscal Q4. So expecting a really strong quarter. We did have some stuff in Q3 because of supply chains move itself into fiscal Q4. As I mentioned, we started off with a good quarter within both businesses, but within CooperSurgical to support that kind of guidance range. So any, anything that maybe you were thinking, Hey, it’s going to be a touch stronger in Q3. You’re going to end up, I think seeing in Q4, because I would imagine those kind of guidance expectations are a little bit above yours or most people’s expectations for Q4. If we look at CooperVision yes, the organic growth is really strong there. The business is doing really well, that team is putting up some impressive results and that’s continuing. I think people underestimate the power of our portfolio, the breadth of our portfolio, the strength of our sales and marketing teams and the amount of new products that we’re launching, right. And whether that’s a parameter expansion or a new product itself, we’re very active and we’ve been very successful in a lot of segments and that’s going to continue. As I mentioned as we roll into this next fiscal year, we’ll be expanding the parameter range of MyDay again, it’s already market leading today. It’s going to be even better up where kind of Biofinity is. So MyDay is kind of turning into a Biofinity daily if you will kind of success story, which is just awesome, amazing. And when you think about Energys, I mean, I’m really excited about that. We launched Biofinity Energys, it did really well for itself. The demand around the Energys technology on a daily sci-hi [ph] has been really strong. We’ve had to ramp up production considerably within MyDay to be able to do that. The manufacturing team has done a killer job to get us where we’re at today. So we have that product. We are going to start seeding the market here in the next couple of months and look forward to getting that launched in early next year. And all that activity along with the other stuff I mentioned, Biofinity and the things like Biofinity Toric Multifocal, and extended ranges, and so forth are all going to continue to support what I believe is going to be stronger than people probably expecting organic revenue growth.

Al White:

Yes.

Jon Block:

Great guys. Thanks. Good afternoon. Brian, maybe I’ll start with you and just the EPS. Fiscal 2022 EPS may be something down by roughly $0.40. I’m not sure if I missed it, but can you bridge the different components clearly FX hit you, the interest rate coming above what you guys laid out last quarter. So maybe just walk us through the headwinds from FX and interest rate. You mentioned a little bit on supply chain as well. And then maybe what the offset was from better than expected – sorry – there’s a lot of noise, better than expected operational growth as the organic came up by roughly a 100 bips.

Al White:

Jon, were you asking about Q4? I thought you were asking about 2023.

Brian Andrews:

So on the full year?

Brian Andrews:

Okay. Yes, so just starting with FX, I mean, we – I talked last quarter about the FX headwind to revenues for the full year being 5%, it’s now 6%. The headwind to EPS last quarter was 14%, it’s now 17%. As it relates to interest expense forecasted of 50, 50, 25, and it was 75, 75 and now we’re saying 75 again in September, that’s about $0.05 right there. So, we’ve adjusted our guidance primarily tied to just FX and interest expense in some – a slight operational improvement, which gets you to that midpoint of 12.80.

Al White:

Yes, on MiSight John, I think, what you are probably referring to is back to school promotional activity. So, I mean the back to school demand has been very strong and we’ve seen that demand on the optometry community. As part of that we were running or are running promotional activity for MiSight. So I’m pretty confident that’s what you are probably seeing out there. If we look at price, yes, we took price earlier this year and then we took price again, this summer. We’re looking at additional price increases right now and into next year. So I think if everything holds as it is with the economy, and inflationary pressures and so forth, you will see incremental price increases from us. 2023 should still be a good growth year for us. We still have a lot of the underlying factors that are driving growth of the entire marketplace and our growth continuing. Now we’re gaining wearers. So when you look at the fit data, as I mentioned, we’re just doing really well. We’re number one on fit data. So when it comes to winning the new wearers coming in and winning the new fits, we’re doing really well in that space. And I think that as we continue to roll products out, launch some of these new products and improve availability of products, we’ll continue to do well from a new fit perspective. And when you combine that with some price, I think, you end up with another pretty good year next year, frankly, for the entire marketplace and us included.

Operator:

Thank you. Please stand by for our next question. [Operator Instructions] Our next question comes from the line of Joanne Wuensch with Citi. Your line is open.

Al White:

Yes, I won’t quantify Joanne, but there is different price increases happening on different products at different points around the world. Not only that you are actually seeing some stuff in terms of like freight surcharges and so forth, I’ll set some of those increases. I mean, the one I think, most recently that we took a few months ago was Biofinity. But we had other increases to start the year. You are right that MyDay Energys is certainly being launched or will be launched at a price premium, which will be another “increase” as you will. And then we’ll look at other opportunities as we move through the end of this year and certainly into next year.

Al White:

That is a continued number one spot.

Al White:

A variety of areas that would really depend on what product you are talking about. I mean, some of them are more dramatic than others as an example MyDay multifocal is doing really well and is picking up from a number of other multifocal companies. And then it’s also picking up new multifocals wearers who are coming into the market. New wearers and I’m talking about new wearers, the new 15-year-old, 16-year-old who enters the marketplace. We’re doing really well there with MyDay and clariti. We don’t have the same opportunity of trade up as you know, as some of our competitors do in terms of them shifting from like an old traditional, if you will hydrogel daily lens to a new silicone, and getting the trade up benefit of that, we don’t have as much of that. So, when you look at our growth, it ends up coming from those new wearers and it’s really a variety of different areas in different spots around the world.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Matt Mishan with KeyBanc. Your line is open.

Al White:

Yes, Matt, we have incorporated that, that was built into Brian’s commentary when he was talking about next year’s numbers and kind of ongoing challenges with respect to the macro economy if you will.

Al White:

I would say very little benefit. In the contact lens industry so much of it still goes around to the prescription itself, right? You go get a script and you buy. So if someone’s having supply chain issues, their wear base generally extends their lenses or they wear their glasses or whatever, in order to get those products, you have to have supply chain challenges of a decent magnitude that lasts a while before you really start seeing changing fitting behavior. So, I don’t think very much right now. I would change that answer if those kind of supply chain difficulties stay at high levels and go an extended period of time. But I don’t know, but as of now, I would say very little.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Jeff Johnson with Baird. Your line is open.

Al White:

Yes.

Al White:

Yes, I can. We can hear you fine. Yes.

Al White:

Yes, I think that’s probably fair. And we had talked about this, I think in last quarter and the quarter before, right, some of those price increases for us move in a little bit slower than others. Some of the guys have a lot on list price, right? So when they raise their list price, they’ll get a benefit from those price increases relatively quickly. We have a lot under contract, especially with respect to anything that we’re doing about store brands and that kind of stuff. So some of those price increases for us have a tendency to roll in over a longer period of time as those contracts need to re-up. But I think the, the magnitude of what you’re talking about right now is, is somewhat in the ballpark to slash lower.

Al White:

No. So, we haven’t changed our pricing in terms of our sell-in, we’ve held pricing. We are trying to do some other stuff, right. When you think about the most successful referral source, if you will or person for us to market the product is anyone who’s used MiSight. The success rate has been really, really positive. So those parents who are positive on the product are telling other people, right? So, we’re trying to offer some promotional campaigns, for instance, for them, Hey, your kid’s now in their second year or their third year wearing MiSight, we’ll give you a discount for everybody who you refer in who comes to MiSight, that type of thing promotional activity for a brand new wearer coming into MiSight around back-to-school. So there is some activity that we’re doing Jeff to be fair in terms of that pricing. There’s been a few highlights about the pricing, be a little high. So if you will, we haven’t taken the list price down, but are running promotional activity, especially with the heavy back-to-school season here. On the other side of things on the freight – there’s still freight’s still a tough one, I got to tell you. Yes, I would say things are getting a little bit better, but everyone still has their challenges there. I think that my gut tells me that those changes are just permanent price increases, if you will. And I think they all go through revenues, don’t they?

Jeff Johnson:

Yes, that makes sense. All right. Thanks guys.

Unidentified Analyst:

Hi, this is actually Lilly on for Robbie. Thanks for taking the question. So operating margin came in lower than what we were thinking and pretty significantly lower than a year ago today. So is there any way to quantify how much of that is FX headwind versus operational challenges?

Unidentified Analyst:

Got it. That’s helpful. And just as a follow-up; where are new fits relative to normal levels? And are there any geographies that stand out is lagging or being above pre-pandemic levels right now? Thanks so much.

Unidentified Analyst:

Got it. Thank you.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Steve Lichtman with Oppenheimer. Your line is open.

Al White:

Yes. On PARAGARD we had a tough quarter. We said this quarter because of the comp. We’ll have a good Q4 where we started off well here in August. Matter of fact we finished strong at the end of July with PARAGARD. So with Roe v. Wade and what’s happened, women are out there and they’re a little bit more concerned about things for obvious reasons. We are seeing that women are looking at okay, well, what’s the most efficacious form of birth control? What direction should I go here? So you – we have seen an increase in interest in LARCs and you’ve seen that in some of the numbers here more recently. So we’ll see if that trend holds, if it does, you’ll continue to see outperformance in IUD. So I would say that the kind of Roe v. Wade outcome if you will, I was saying that it was a neutral to a modest, positive to us. I would probably upgrade that to saying that that’s turning out to be a modest positive to our business. We’ll see how PARAGARD goes, but I would envision a decent quarter in Q4 that’s for sure.

Brian Andrews:

Yes. Hi, Steve. Good question. Yes. So CapEx picked up a little bit in the third quarter. Al in his prepared remarks talked about how we put some lines in place and we’re – we’re doing whatever we can as quickly as we can to ramp-up capacity. It’s hugely difficult to increase capacity quickly and we’re having a tough time meeting demand. So I would expect, I’m expecting a pretty high CapEx number in the fourth quarter. Still free cash flow being strong for the full year, but that trend kind of continuing where next year CapEx continues to go higher as we continue to put more capacity in place to try to meet demand.

Operator:

Thank you. Please stand by for our next question. Our next question comes from the line of David Saxon with Needham. Your line is open.

Al White:

Yes. So a couple things on PARAGARD. We did see office visits down – OB/GYN office visits down and that was due to PARAGARD, I’m sorry, COVID related staffing challenges, right. We’ve seen some of that same stuff obviously in optometry offices and I’m sure everyone has seen that in other areas of the world. But we definitely saw a negative impact to patient traffic, especially with respect to things like general OB/GYN visits and contraception OB/GYN visits during the summer months. After the Roe v. Wade situation and a little bit of improvement in terms of capacity, you had a bunch more attention if you will focused on the matter. And we’ve seen that attention be a benefit to PARAGARD because PARAGARD is, I mean, it’s highly efficacious, 99% plus efficacious. So if you don’t want to get pregnant, get an IUD and as people look at that become more aware of that, obviously PARAGARD is the only non-hormonal IUD in the marketplace. We’ve seen an increase in terms of interest in the product and people inquiring about it, people searching for it. Our team, I think has really done a nice job trying to capitalize on that activity. So we saw that improvement starting in July. We’ve seen it continue here through August and yes, I think you’ll see growth certainly in Q4. TBD on price increases, one of our competitors did a price increase or is doing one here will evaluate another one and take price if we can, if it’s appropriate.

Al White:

Yes. I would call that somewhere around the kind of breakeven this year. Let’s go with – let’s just say it’s breakeven, and then it’ll shift to being profitable next year. We build a lot of infrastructure there in terms of myopia management support people and so forth. We’ll start to leverage that infrastructure as we get into next year. So, yes, that’s an operating margin drag certainly right now. It gets better next year and then hopefully as if it continues to grow at the pace it’s growing and what we’re seeing yes, we’ll continue to improve that operating margin. Hopefully at some point in the future get that to be operating margin positive, especially with the gross margins in that business.

Operator:

Thank you. I’m not showing any further questions. I will now like to turn the call back over to Al White for closing remarks.

Operator:

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

Operator:

Good day, and thank you for standing by. Welcome to the Cooper Companies Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead, ma'am.

Albert White:

Great. Thank you, Kim, and welcome, everyone, to our second quarter conference call. Let me start by highlighting that our businesses are performing extremely well. Both CooperVision and CooperSurgical posted strong revenue growth, gained share and are continuing to see strong momentum. We're successfully managing through a variety of challenges from supply chain to COVID restrictions in China and we're maintaining our market-leading growth rates. So I'm really pleased with how the year is progressing. For the full year, we're increasing our organic revenue guidance for both businesses by incorporating our Q2 outperformance and the strength we're continuing to see. Moving to the quarter. Consolidated revenues reached an all-time high of $830 million, with CooperVision at $554 million, up 12% organically and CooperSurgical at $276 million, up 40% as reported or up 6% organically. The quarter was led by strength in CooperVision's daily silicone hydrogel portfolio and our myopia management products and CooperSurgical's fertility business, which posted another double-digit growth quarter. Non-GAAP earnings per share were $3.24, and Brian will provide the details, but this quarter was negatively impacted by FX in our contact lens solutions business. Moving to CooperVision and reporting all percentages on an organic basis. Our revenue growth was strong and diversified as we grew nicely in all product categories, spheres, torics and multifocals within all 3 geographic regions. The Americas were up 8%, EMEA grew 17% and Asia Pac grew 11%. This resulted in nice share gains, which is impressive following our strong Q1 performance. And for those of you tracking calendar quarters, our calendar Q1 organic growth rate was 16% against the market we estimate grew 12%. So strong numbers, and we remain well positioned to continue gaining share as we launch new products, expand product ranges, provide market-leading flexibility through our customized offerings, execute on key account relationships and deliver fantastic customer service. Regarding products, our daily silicone hydrogel lenses posted very strong results, growing 28%. Daily silicones continue to lead the market, and we offer the broadest portfolio in the industry. Our premium 1-day offering, MyDay, is available on a broad range of spheres, torics and multifocals. And while all these categories are performing well, it's worth highlighting the multifocal. The launch of the MyDay multifocal is still limited geographically, but it's rapidly taking share in markets where it's available, and we'll continue rolling it out as we progress through the year. The feedback from optometrists on our breakthrough binocular progressive fitting system remains fantastic, and patients are continuing to say the lens is the best multifocal they've ever worn. This success is also driving a nice halo effect on our already successful MyDay spheres and torics, so we remain very optimistic about the future of this brand. The other brand in our daily silicone hydrogel portfolio is clariti, which is also available as a sphere, toric and multifocal and is typically sold into more of a mass market setting. This lens performed really well again this quarter, especially in our Asia Pac region, where we're continuing to roll out this year in Japan. Our silicone FRPs, Biofinity and Avaira reported another solid quarter of 8% growth. And lastly, as an umbrella comment about all these offerings, I'm happy to report that we're seeing an uptick in the growth rate of our branded product sales. As many of you are aware, we take a lot of pride in our customized offerings, which includes customer brands, but our own high-quality CooperVision brands are also showing strong growth, especially MyDay. Moving to myopia management. We posted revenues of $23 million, up 61%, including MiSight up 144%. The specialty part of our business is extremely healthy, driven by growing traction in key accounts and continued strength with private practitioners. We have some challenges in China, where COVID restrictions are hurting our ortho-k sales and impacting our MiSight launch but the rest of the world is performing really well. MiSight, in particular, is excelling in all geographies as the ophthalmic community continues to embrace the growing myopia management segment of the market. And on another encouraging note, we're also seeing positive halo trends with our tracking data showing customers who are selling MiSight are accelerating their selling of our other lenses. Moving to SightGlass, myopia and management glasses. We closed our joint venture with EssilorLuxottica in March, and we're already seeing exciting progress, including additional availability of the product in additional markets such as China. Regarding an FDA approval, the 3-year clinical data for SightGlass is being compiled right now, and we look forward to receiving the data and sharing it with the FDA in the near future. So in summary, we're seeing strong momentum in all areas of myopia management, and we expect to continue posting strong results. Before moving to market data, let me touch on our contact lens solutions business. Recent supply challenges have hit this operation hard, and we've experienced a significant decline in sales. Given this, we completed a strategic review and confirmed this is a nonstrategic business in a declining industry that's going to require a lot of capital to upgrade the facility. So we decided to exit the business by fiscal year-end. From a financial perspective, we expect this business to report roughly $20 million in revenues this year, down from $44 million last year. We are excluding these results from our organic growth rates to ensure transparency and comparability, and Brian will provide additional color on the rest of the P&L in a few minutes. To wrap up on CooperVision, the contact lens market is performing exceptionally well, even in the face of continuing COVID challenges. Growth in daily silicones and an increasing prevalence of childhood myopia are offsetting the lower patient traffic tied to COVID. We expect global growth in the industry to remain strong as patient traffic continues to improve, and we look forward to what should be a strong back-to-school season this fall. Growth is also supported by the macro trends around vision correction, including that roughly 1/3 of the world is myopic today and that is expected to increase to 50% by 2050. For CooperVision, we have a robust product portfolio, ongoing product launches, a fast-growing myopia management business, and our fit data remains very strong. So we remain very bullish on our future. Moving to CooperSurgical. We posted another strong quarter led by double-digit growth in our fertility business. Our OB/GYN medical device portfolio also returned to growth, and our stem cell storage business posted a solid quarter. We did have some unexpected weakness in PARAGARD, but believe our performance track the broader IUD market, which hasn't rebounded as fast from COVID as other areas. Walking through each of these, let me start with fertility. Fertility posted sales of $114 million, up 15%. Strength was seen throughout our product portfolio of consumables, capital equipment, genomics and donor ag activity. Particular strength was seen from our RI Witness products, which comprise our proprietary automated lab management system that clinics implement to maximize safety and security by optimizing their lab practices along with strength from our AI-based genetic testing, which doctors used to select the best embryo transfer. Moving to our office and surgical category. We posted sales of $162 million, down 1%. Our OB/GYN medical devices grew 3%, which was strong given this is the area where we were most impacted by global supply chain challenges. Particular strength in this business unit was seen within our labor and delivery portfolio and laparoscopic closure products. Moving to our stem cell storage business that we entered with the Generate acquisition, sales grew 5%. There is a ton of activity right now integrating this business into CooperSurgical, and it's going well. The teams are seeing early success on commercial synergies, and they have some exciting ideas to drive additional growth synergies. So I remain bullish on our future in this space. Lastly, on PARAGARD. Sales were down 6% for the quarter, and we're continuing to see softness in the market. This certainly doesn't appear to be product-specific as the entire IUD marketplace has remained under pressure with lower volumes driven by lower patient flow and what we believe is a temporary shift in buying behavior to birth control pills with telemedicine. We're closely monitoring the market and we remain cautiously optimistic we'll see a return to pre-COVID levels as we move towards the end of the year. To wrap up on CooperSurgical, let me highlight a few key takeaways. First, we're seeing success from our Generate acquisition, both on the fertility and stem cell storage parts of the business. There are a lot of commercial synergies that we're capitalizing on, and this acquisition is certainly looking like a success right now. Second, our fertility business continues to perform extremely well. This is a solid growth industry with strong macro trends, and we continue forecasting long-term market growth of 5% to 10% with us in the upper part of that range. Lastly, our team has completed 6 acquisitions since the beginning of last fiscal year, and they've maintained market-leading customer service and strong sales even while integrating these businesses and managing through significant supply chain and logistics challenges, so impressive performance. To conclude, we operate in recession-resistant industries with strong macro growth trends. Additionally, significant amounts of our sales are annuity in nature. So we need to be resilient in times like this, investing intelligently to capitalize on growth opportunities while ensuring we're advancing our infrastructure projects to support our growth. We'll remain sensitive to the challenges facing us and be proactive managing our businesses, maintaining a focus on delivering long-term shareholder value. This includes continuing to make progress on our ESG initiatives. We just released our second ESG report, which highlights progress in several important areas, and you can find this report on our Investor Relations page. And lastly, I'd be remiss if I didn't thank our fantastic employees. It's their hard work and dedication that drives our success and makes Cooper such a special place to work. So a big thank you to all Cooper employees. And with that, I'll turn the call over to Brian.

Operator:

[Operator Instructions] Our first question comes from Matthew Mishan with KeyBanc.

Albert White:

I think, Matt, it's a little different depending upon where you are around the world, right? Because some markets are obviously back like the U.S. and then other markets are in situations where it's quite a bit more restrictive. But as of today, I would say, we have not seen a lot of consumer activity changes because of inflation. I wouldn't highlight that as something that we've really seen.

Albert White:

Yes, I won't break out all the China details. The thing that's hurting us probably more than anything right now ends up being currency because that's impacting a lot of our sales around the world. I think we still have a chance to get to that $100 million even in the face of currency, even in the face of the China shutdowns that we've seen in Shanghai, that's negatively impacted the MiSight launch over there. It's negatively impacted our sales. But we have so much strength with MiSight, especially here in the U.S. and throughout Europe that I think we still have a chance to get to $100 million. Maybe it's because of currency, it's $95 million to $100 million when I roll in currency in China and everything else. But I'm not giving up right now on the possibility of getting to $100 million.

Larry Biegelsen:

Just one on Cook Medical and one on the EPS guidance for Brian. So Al, just an update on Cook Medical deal and next steps, confidence that the deal will close in late calendar '22. And do you expect potential divestitures? And have the economics changed, the accretion change just from the old economics, just a different starting point? And I have one follow-up.

Larry Biegelsen:

Fair enough. And then, Brian, could you bridge, there's a lot of moving parts, kind of the old EPS guidance to the new EPS guidance? I mean you gave the pieces, but can you give the numbers? How much worse is FX from an EPS standpoint, interest, the contact lens solution, just kind of the pieces you called out? Can you kind of give us some numbers on that and tax?

Operator:

Our next question comes from Jason Bednar with Piper Sandler.

Brian Andrews:

Yes. I mean the pound, as everybody knows, the pound is a 6-month lag. So we're going to get some benefit from the pound in the fourth quarter. So as the pound weakens, that certainly has a nice impact to cost of goods. We'll have to see what happens on revenues. Obviously, the impact to revenues this year has been so significant. So any move in the right direction significantly helps. Now when you look at your operating margin of around 25%, yes, I would say that's in the ballpark, that certainly fits within the guidance that we've suggested. That's really just being driven down primarily by currency. We're certainly going to get some OpEx leverage from more of the integration efforts that we're undertaking. We've been accelerating our integration efforts. Al mentioned the 6 deals we did since the beginning of last fiscal year. We've moved faster to integrate Generate. As an example, fertility is integrating faster. But in general, we're integrating those more quickly. Generate's going to get some more OpEx leverage next year and then just the continued moves that we're making around Costa Rica. You'll get the full benefit next year. We put a power plant in place in Puerto Rico. That will help gross margin next year. So I'd say overall, gross margin should be up on a constant currency basis within both divisions at least a little bit next year and operating margins, we should get some leverage out of OpEx next year on a constant currency basis.

Brian Andrews:

For now, the decision is to really stay the course. I mean we've been -- just like currency interest rates are going to move and bounce around. We're -- I'd say, our first priority with respect to capital allocation is to pay down debt. So we're going to generate a decent amount of free cash flow in the back half of this year. That will go towards paying down debt and investing back in the business like into CapEx. But we're still going to be able to take out a decent chunk of debt in the back half, and that will continue next year. So we'll have to see how things play out. We're -- but for now, we're going to stay the course. And as everybody knows, we have $1 billion hedged at fixed for another several years. So as we take down that debt, it will help offset some of the interest rate moves.

Chris Cooley:

Just 2 for me, if I may. First, just near term, when we think about just the margin structure there. You had an acceleration in daily silicon hydrogel sequentially just in terms of the growth rate. So as we think about the mix kind of going into the back half of the year, ex currency, can we start to think about a little bit better margin profile overall with growth in myopia management as well as some of these premium offerings just within the broader CDI portfolio? And then just for my follow-up. Just a little bit curious that maybe I didn't catch this in the prepared remarks, but you mentioned an improvement in the outlook for PARAGARD at the -- as we're exiting the fiscal year. But wasn't sure if you now expected to see actual growth year-over-year in the franchise. And so just trying to think about how to square that as we trend through the back half of the year.

Brian Andrews:

So on the gross margin question, I would say that currency is just having a bigger impact on margins in the back half of the year than really anything else. I mean certainly, there are puts and takes when you look through FX. Myopia management is a positive to gross margins, but we're seeing a really rapid acceleration back into daily SiHy. And so that puts a little bit of pressure on our gross margins. So that would be kind of one of the offsets. I'd say in Q3, we always have a little bit of negative manufacturing variances that hit us in Q3 from shutting down our lines in the first fiscal quarter of the year. So that's going to be a little bit of a headwind. And then you get some benefit, like I said, in cost of goods within -- from FX in the fourth quarter, and the business is going to be performing really well in the fourth quarter with less of -- well, with strength in both businesses. So I would say nothing really tied to myopia management, but the puts and takes are kind of those couple of elements.